UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2012
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 0-15175
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
_____________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
77-0019522
(I.R.S. Employer
Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)
(408) 536-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
_____________________________
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes
No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Smaller reporting company
No
The aggregate market value of the registrant’s common stock, $0.0001 par value per share, held by non-affiliates of the registrant on June 1, 2012, the last
business day of the registrant’s most recently completed second fiscal quarter, was $12,526,183,922 (based on the closing sales price of the registrant’s common
stock on that date). Shares of the registrant’s common stock held by each officer and director and each person who owns 5% or more of the outstanding common
stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes. As of January 18, 2013, 498,790,943 shares of the registrant’s common stock, $0.0001 par value per share, were issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2013 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal
year ended November 30, 2012, are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this
Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.
ADOBE SYSTEMS INCORPORATED
FORM 10-K
TABLE OF CONTENTS
Page No.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business....................................................................................................................................................
Risk Factors..............................................................................................................................................
Unresolved Staff Comments ....................................................................................................................
Properties..................................................................................................................................................
Legal Proceedings ....................................................................................................................................
Mine Safety Disclosures...........................................................................................................................
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38
48
49
51
51
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...................................................................................................................................
Selected Financial Data ............................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations...................
Quantitative and Qualitative Disclosures About Market Risk .................................................................
Financial Statements and Supplementary Data ........................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................
Controls and Procedures...........................................................................................................................
Other Information.....................................................................................................................................
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55
75
78
123
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PART II
Item 5.
Item 6
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance.......................................................................
Executive Compensation..........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters...................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence.........................................
Principal Accounting Fees and Services ..................................................................................................
123
123
Exhibits, Financial Statement Schedules .................................................................................................
124
Signatures ...................................................................................................................................................................
Summary of Trademarks.............................................................................................................................................
Index to Exhibits.........................................................................................................................................................
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127
129
Item 13.
Item 14.
123
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PART IV
Item 15.
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Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements, including
statements regarding product plans, future growth and market opportunities which involve risks and uncertainties that could cause
actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled “Risk Factors” in Part I, Item 1A of this report. You should
carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange
Commission (“the SEC”), including our Quarterly Reports on Form 10-Q to be filed in 2013. When used in this report, the words
“will,” “expects,” “could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,”
“looks for,” “looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally
intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements which
speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of this document.
PART I
ITEM 1. BUSINESS
Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world.
We offer a line of software and services used by creative professionals, marketers, knowledge workers, application developers,
enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and
experiences across multiple operating systems, devices and media. We market and license our software directly to enterprise
customers through our sales force and to end users through app stores and our own website at www.adobe.com. We also distribute
our products through a network of distributors, value-added resellers (“VARs”), systems integrators, independent software vendors
(“ISVs”), retailers and original equipment manufacturers (“OEMs”). In addition, we license our technology to hardware
manufacturers, software developers and service providers for use in their products and solutions. We offer some of our products
via a Software-as-a-Service (“SaaS”) model (also known as a hosted or “cloud-based” model) as well as through term subscription
and pay-per-use models. Our software runs on personal computers (“PCs”) and server-based computers, as well as on smartphones,
tablets and other devices, depending on the product. We have operations in the Americas, Europe, Middle East and Africa (“EMEA”)
and Asia-Pacific (“APAC”). See Note 18 of our Notes to Consolidated Financial Statements for further geographical information.
Adobe was originally incorporated in California in October 1983 and was reincorporated in Delaware in May 1997. We
maintain executive offices and principal facilities at 345 Park Avenue, San Jose, California 95110-2704. Our telephone number
is 408-536-6000. We maintain a website at www.adobe.com. Investors can obtain copies of our SEC filings from this site free of
charge, as well as from the SEC website at www.sec.gov. The information posted to our website is not incorporated into this Annual
Report on Form 10-K.
BUSINESS OVERVIEW
For 30 years, innovation in Adobe software and technologies has transformed how individuals, businesses and governments
communicate and interact with their constituents. Across the markets we serve, Adobe helps its customers create and deliver the
most compelling content and interactive experiences in a streamlined workflow, and optimize those experiences and marketing
activities for greater return on investment. Our solutions turn ordinary interactions into compelling and valuable digital experiences,
across media and devices, anywhere, anytime.
While we continue to market and license a broad portfolio of products and solutions, we focus our greatest business
investment in two strategic growth areas:
Digital Media—providing tools, services and solutions that enable individuals, small businesses and enterprises to create,
publish, promote and monetize their content anywhere. Our customers include traditional content creators, web designers, app
developers and digital media professionals, as well as their management in marketing departments and agencies, companies and
publishers. This is the core of what we have delivered for over 20 years, but we are evolving rapidly to provide these customers
with a more complete and integrated workflow across the variety of new devices, formats and business models that continue to
emerge.
Digital Marketing—providing solutions and services for how digital advertising and marketing campaigns are created,
managed, executed, measured and optimized. Our customers include digital marketers, advertisers, publishers, merchandisers,
web analysts, chief marketing officers and chief revenue officers. We process over a trillion web transactions a quarter via SaaS,
providing our customers with analytics, social, targeting, media optimization and experience management solutions This
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complements our digital media franchise, bringing together the art of creating content with monetization and the science of
measuring and optimizing it, enabling our customers to achieve optimal business outcomes.
To capitalize on the potential in these two market areas, we made several significant changes in key areas of our business
during the past two years. We have made investments to increase the deployment of some of our products through new SaaS
models, and to offer a new subscription model for our creative products. We believe these business model changes allow us to
target new users, as well as increase the amount of recurring revenue we generate as a percent of our total revenue, thus creating
the potential for our business to be more predictable.
We have also invested in the development of new products that address emerging customer needs in these two market areas
and represent new revenue sources. In addition, we made several acquisitions during the past two years to broaden the scope of
our solutions. We believe the new products we are bringing to market, combined with products and technologies we have acquired,
will make our Digital Media and Digital Marketing solutions more compelling to our customers.
While we have increased our investments in certain products areas, we have also reduced our focus on certain products.
The cost savings resulting from the reduced focus on certain product areas has been redeployed as we continue to invest into
research and development and sales and marketing to drive higher growth potential in our two focus areas.
Because of this transformation we have undertaken, as we enter fiscal year 2013 we believe we are uniquely positioned to
be a leader in both the Digital Media and Digital Marketing categories where our mission to change the world through digital
experiences resonates well with customers.
PRODUCTS AND SERVICES OVERVIEW
This overview is organized by our three reportable segments: Digital Media, Digital Marketing, and Print and Publishing.
For each segment, we provide an explanation of our market opportunities, a review of our segment results, and a discussion of
our strategies to address our market opportunities in fiscal 2013 and beyond. See Note 18 of our Notes to Consolidated Financial
Statements for further segment information.
Digital Media Segment
Digital Media Opportunity
We believe we are at a key inflection point in the history of digital communications. A convergence of major trends is
occurring, which in turn is driving changes in consumer behavior and expectations. These trends include the rise in use of
smartphones and tablets, increased internet access speeds, new business models driven by online commerce and app stores, the
increase in media and entertainment made available online, the impact of online social communities, and software delivery
transitioning from prior PC delivery models to cloud-based services.
These trends and changes are having a profound impact on our customers, who are interacting with content on a daily basis
and want to regularly share and collaborate with colleagues and clients. Adobe customers, large and small, are rethinking their
online presence, addressing concerns such as how to make a site more dynamic, how to manage visitors from both PCs and mobile
devices, whether to invest in web browser-based applications or create individual mobile apps, and how to transition from legacy
content delivery methods to new models which offer new revenue streams. For our customers, these challenges create a great deal
of complexity in their workflows and cost structures. For Adobe, these challenges and complexities our customers face are
expanding the size of the markets we can target.
We realigned our company entering fiscal 2012 and created our Digital Media business unit to address these opportunities
as we believed these market conditions presented significant opportunities for Adobe to rapidly deliver product innovation, access
new market segments, increase engagement with our customers, transition our business to promote a recurring revenue model,
and accelerate our revenue growth. Our goal is to be the leading provider of tools and services that allow individuals, small
businesses and enterprises to create, publish, promote and monetize their content anywhere.
The flagship of our Digital Media business is Adobe Creative Cloud, which is an ongoing membership service that lets our
customers download and install the latest version of any of our Adobe Creative Suite desktop products, and other creative software
like Adobe Photoshop Lightroom and new HTML version 5 (“HTML5”) based products and services. Creative Cloud members
also get online services to sync, store, and share files, participate in creative communities, receive product training, as well as
publish digital magazines to the iPad, develop mobile applications, and create and manage websites. We believe Creative Cloud
is redefining the creative process and becoming a destination place where our creative customers can obtain everything they need
to create, collaborate on and deliver engaging digital content.
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The cornerstone of Creative Cloud is our Creative Suite family of products. Consisting of sixteen individual products and
four suites that contain different combinations of these products, we focus on the needs of creative professional customers, which
include graphic designers, production artists, web designers and developers, user interface designers, writers, videographers,
motion graphic artists, prepress professionals, video game developers, mobile application developers, students and administrators.
They use and rely on our solutions for publishing, web design and development, video and animation production, mobile app and
gaming development and document creation and collaboration. They work in businesses ranging from large publishers, media
companies and global enterprises, to smaller design agencies, small and medium-sized businesses and individual freelancers.
Our creative products are used by creative professionals to create much of the printed and on-line information people see,
read and interact with every day, including newspapers, magazines, websites, mobile apps, catalogs, advertisements, brochures,
product documentation, books, memos, reports and banners. Our tools are also used to create and enhance visually rich content,
including video, animation and mobile content, that is created by multimedia, film, television, audio and video producers who
work in advertising, web design, music, entertainment, corporate and marketing communications, product design, user interface
design, sales training, printing, architecture and fine arts. Knowledge workers, educators, hobbyists and high end consumers also
use our creative products to create and deliver content that is of professional level quality.
We believe the innovation we deliver in the tools and solutions our customers use enables the future of digital media. Our
creative solutions are mission-critical to customers such as publishers, advertisers and media companies; they rely on Adobe tools
and technologies to create highly compelling content, deliver it across diverse media and devices, and then optimize it through
systematic targeting and measurement. For example:
•
Publishers around the world are striving to embrace the digital age to build distinctive brands, develop sustainable
business strategies, achieve greater profitability, and deliver optimized content to fragmented audiences on an expanding
array of smartphones, tablets, e-readers, and other devices. Their audiences seek compelling, media-rich experiences,
wherever they go, using their preferred devices. The advent of app stores is enabling publishers to reach these audiences
in easy, more effective and affordable ways, through the delivery of apps and content via online subscription services
to their readers and customers.
•
Advertisers face an ever-shifting media landscape. Traditional media are giving way to the emergence of new digital
channels such as mobile devices and social networks. Customers have greater choice in where they go for their preferred
brands, making it harder for marketers to keep audiences engaged. Successful advertising increasingly requires
compelling content and greater focus on data and analytics than ever before in order to optimize advertising for improved
targeting and higher returns.
The challenges facing customers such as these not only exist in how they create and deliver their content, but also in how
they manage, measure and optimize their content. Adobe's value proposition extends beyond our historical focus on content creation
to other critical aspects of our customers' workflow, with how we can integrate the capabilities of our analytics and web optimization
solutions, as well as our other digital marketing solutions. These are discussed later in the “Digital Marketing Opportunity” section.
In the second quarter of fiscal 2011, we released CS5.5. At that time we also introduced a monthly subscription offering.
This lower upfront fee, as opposed to the higher upfront perpetual license fee, provides cost-sensitive new users access to our
products, as well as enabled users of older versions of our products to migrate to the latest versions at a lower upfront cost. The
subscription offering also enabled users to have immediate access to software updates and new innovations that we implemented
in our creative products in between release dates of the products.
Given our success in attracting new and existing customers to our initial subscription offering, combined with our offering
of cloud-based services as a means to deliver more value to our users, we announced Creative Cloud in October 2011 and in the
second quarter of fiscal 2012, we delivered the initial release of our new Creative Cloud subscription offering. As part of Creative
Cloud, we also delivered Creative Suite 6 (“CS6”), which is the newest release of our creative toolset. CS6 provides numerous
feature enhancements, particularly in the areas of mobile device content creation, website development with new HTML5
capabilities, digital imaging, digital publishing for tablets and product performance. Customers obtained CS6 capabilities through
both our historical perpetual licensing model as well as through our new subscription-based model.
A key benefit of our Creative Cloud offering is the rapid delivery of additional products and product updates to subscribers
as soon as these products and updates become available. Examples of additional value provided to customers through Creative
Cloud since its initial release included the delivery of new features for Adobe Illustrator users, new enhancements for web designers
and an updated version of Adobe Acrobat. In addition, new products and capabilities were made available to Creative Cloud
subscribers that were not made available to licensees of the perpetual products. Adobe Lightroom, our popular image editing and
photo management tool, was delivered as an additional enhancement to Creative Cloud subscribers in the summer of 2012, and
new HTML5 content creation capabilities were delivered through the release of our new Adobe Edge Animate product and related
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Edge Tools & Services to subscribers in September. These additional capabilities demonstrate our commitment to deliver ongoing
value and capabilities as they become available and are needed by our customers.
We believe our Creative Cloud offering, marketed as a subscription model with attractive monthly pricing, will be a catalyst
for revenue growth in the coming years. By increasing the value we provide to our core creative customers with Creative Cloud
services, we anticipate we can grow our revenue per customer over time as they begin to use additional features available to them
in the offering. We also believe the monthly pricing model will be attractive to users of older versions of our products who desire
to use our latest releases and services, but who have not been willing to upgrade to newer versions due to their price sensitivity,
and, therefore, will increase our revenue potential with them. Similarly, we anticipate we can drive significant new user adoption
of our creative tools business over the next several years outside of our core creative professional targeted market because of the
attractive monthly subscription pricing combined with the strong brand of our creative tools and the broad value proposition
provided by our Creative Cloud offering.
In addition to a monthly subscription price that provides access to use of all of our latest creative tools and services, we
also offer subscription pricing for Creative Cloud for some of our key point products, as well as for users in the education market.
Similarly, we offer Creative Cloud for team and enterprise users. We believe the mix of these offerings will drive new user
acquisition and increase our revenue over time.
The impact of this business model shift based on the product offering and the subscription pricing will affect the revenue
and cash flow to Adobe. As customers make a shift from paying upfront for the use of our software in the perpetual model to the
new subscription model where they pay over time, reported revenue and cash flow will be lower in the short term when compared
to the historical perpetual model. However, over time we expect this business model transition will significantly increase our longterm revenue growth rate by (1) attracting new users, (2) keeping our user base current and (3) thereby driving higher average
revenue per user. Additionally, our shift to a subscription model will increase the amount of our recurring revenue that is ratably
reported, driven by broader Creative Cloud adoption over the next several years.
In addition to the shifts in how we develop, market and license our creative tools to our customers, we have also implemented
several initiatives to create and drive new revenue streams in our Digital Media business. These initiatives include delivering
advanced publishing services, enhancing the capabilities of our solutions to utilize new innovations in HTML5, delivering new
touch-based apps to expand our content creation user base to mobile device owners, enhancing our video solutions and addressing
the needs of the knowledge worker.
Adobe Digital Publishing Suite (“DPS”) is an online, hosted publishing solution that enables magazine and newspaper
publishers to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices.
Our Digital Publishing solution utilizes flexible e-commerce models to sell single issues and subscriptions directly to consumers
through mobile marketplaces and app stores. Our customers can create and enhance content through integration with our CS6
tools to enable a complete workflow for the creation and delivery of content via our Content Viewer technology, which is utilized
by users on tablets and smartphones. Analytics capabilities are built into these apps and are based on our Digital Marketing products.
The analytics features enable publishers to measure and understand the use of the digital editions they deliver with our solutions,
and more effectively monetize their digital edition apps with more relevant advertising.
In addition to the Enterprise version that publishers and large media companies use, we also offer Digital Publishing Single
Edition, which can be used by other customers who want to publish their content as apps in app stores on an individual and ad
hoc basis. Single Edition can be used by individuals to publish any type of publication to app stores, including research reports,
catalogs, marketing materials and even more specific consumer-related content such as wedding photo albums. The combination
of our different DPS offerings significantly increases our market opportunity to target anyone wanting to deliver a digital publication
via app stores.
Adobe has long been an innovator in helping drive the HTML standards process and then delivering the best tools in the
market to create content based on web standards. The ongoing evolution of new standards, including HTML5, and their adoption
in popular browsers, become significant catalysts for revenue growth in our solutions. To address this opportunity, we are innovating
across the spectrum of content creation, content delivery, and content display in browsers and mobile apps. Our innovation includes
adding new capabilities to web standards such as HTML and CSS, contributing technology to open source projects such as jQuery
(an HTML and JavaScript library to assist with creating websites) and Webkit (the open source foundation for many popular web
browsers such as Apple Safari and Google Chrome), and adding new features to products such as Adobe InDesign, Adobe
Dreamweaver and the new Edge Tools & Services to enable our customers to utilize these innovations occurring in web browsers.
Our innovation with web standards also includes the creation and delivery of brand new products built on top of web
standards to help our customers create engaging content leveraging the latest innovations in web browsers on PC and non-PC
devices. In the fall of 2012 we announced the availability of Adobe Edge Tools & Services, including Adobe Edge Animate, Adobe
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Edge Inspect (formerly codenamed “Shadow”), Adobe PhoneGap Build and Adobe Edge Web Fonts. We also previewed Adobe
Edge Code and Adobe Edge Reflow. These powerful tools enable web designers and developers to build cutting-edge websites,
digital content and mobile apps. For website development, we also provide Adobe Muse, which allows designers to design and
publish websites without having to learn and write HTML5 code. Muse integrates with other Adobe tools and enables designers
to easily publish their websites using our Business Catalyst web hosting service or any other hosting provider.
While we increase our investments in our solutions utilizing web standards, we also continue to innovate in our Adobe
Flash technologies, including the Adobe Flash Player for PC-based browsers and Adobe AIR for packaging standalone applications
for PCs and mobile devices. The broad reach and adoption of the newest versions of our Flash technologies on personal computers
and for use with mobile devices allow our customers to deliver new and more engaging experiences using our tools and services.
Going forward, we are primarily focused on enhancing the gaming and premium video delivery aspects of our Flash technologybased solutions.
Just as AIR and our Flash tools enable Flash technology-based applications to be packaged for mobile devices, PhoneGap
and PhoneGap Build provide similar capabilities for applications built using web standards. Based on the open source PhoneGap
framework, PhoneGap Build enables users to build cross-platform mobile applications using HTML5, CSS and JavaScript that
run on popular mobile operating systems such as Android, iOS and BlackBerry OS.
As millions of web developers and website designers look to build mobile apps to increase engagement with their constituents,
we believe our AIR and PhoneGap solutions enable them to build cross-platform apps as well as reuse their existing browserbased content to deliver standalone apps on popular smartphones and tablets.
In 2011 we began delivering a series of content creation tools which run on tablets such as the Apple iPad. These apps and
their features are discussed later in the “Digital Media—Touch App Products” section. The Adobe touch apps integrate with
Creative Cloud enabling subscribers to move between the apps and Creative Suite software, and to view, access, share, and present
creative work from anywhere.
Over the past several years, as consumers and advertisers demand more professional video online and on devices, media
companies have an unprecedented opportunity to monetize their content and expand the reach of broadcast advertising. Because
of this trend and the general explosion of video being created and delivered over the web, new opportunities have emerged for
Adobe to significantly expand its market opportunity in areas such as video content creation, delivery, authentication and
monetization.
Our products addressing these opportunities span across our Digital Media and Digital Marketing business segments. In
Digital Media, our video content creation solutions are centered around our Adobe Premiere Pro and Adobe After Effects products,
and the Creative Suite Production Premium that contains these products plus other capabilities. With our increased focus on these
solutions over the past several years, we believe we are the leader in the market for providing video and special effects editing for
creative professionals and professional videographers. We have invested resources to improve the performance and capabilities
of our video authoring solutions, and as a result, have significantly grown our market share over the past several years in the
professional video editing market.
With our growing leadership position in video authoring, we have worked closely with our customers to build a more
complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. To enable
collaborative video authoring environments, we also offer Adobe Anywhere for video. Adobe Anywhere allows customers to bring
teams together, enabling them to better collaborate and create productions from virtually any location where there is network
connectivity. With Adobe Anywhere, editors, visual effects artists, and other video professionals can use local or remote networks
to simultaneously access, stream, and work with remotely stored media. Its collaborative capabilities are embedded directly in
Adobe Premiere Pro, After Effects, and Adobe Prelude software, eliminating the need for team members to learn additional video
software tools.
Our video content delivery, authentication and monetization opportunities, and our solutions which address them, are
centered around an initiative we announced in 2012 called Project Primetime, and are discussed later in in the section titled “Digital
Marketing Opportunity.”
As part of our Digital Media focus, we also address the needs of knowledge worker customers: people working in document
intensive industries, focused on creating and disseminating high-value information as part of their job on a regular basis. Knowledge
workers include a wide variety of job functions such as accountants, attorneys, architects, educators, engineers, graphic designers,
insurance underwriters and stock analysts. These jobs typically require the sharing of information either as a static, published
document or as a collaborative, interactive document.
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Knowledge workers must create information and content from a variety of sources and software applications, and be able
to exchange this information within a reliable format that ensures coworkers and constituents can reliably and securely access the
information. When appropriate, this information often needs to be protected, authenticated, or securely managed and controlled.
Document-based collaboration among knowledge workers can occur through face-to-face meetings, via phone calls, through
e-mail or through web conferencing technologies. Knowledge workers who participate in collaborations with their colleagues may
be located in offices next door to each other, or in different parts of the world. These team members may change with every project
and either be part of an organization's employee base, or be an external consultant or third-party partner.
We believe there is a significant opportunity to provide solutions which enable knowledge workers to communicate and
collaborate across technical, geographical and social boundaries, both inside and outside of their companies. We believe that with
such solutions, users can collaborate and efficiently manage feedback from their colleagues in both real time and on-demand, and
control how, when and by whom information is accessed.
Since the early 1990s, our Acrobat family of products has provided for the reliable creation and exchange of electronic
documents, regardless of platform or application source type. Users can collaborate on documents with electronic comments and
tailor the security of a file in order to distribute reliable Adobe PDF documents that can be viewed, printed or interacted with
utilizing the free Adobe Reader. Available in different versions which target a variety of user needs, Acrobat provides essential
electronic document capabilities and services to help knowledge workers accomplish a wide range of ad hoc tasks involving digital
documents ranging from simple publications to forms to mission critical engineering and architectural plans. Although Acrobat
has achieved strong market adoption in document-intensive industries such as government, financial services, pharmaceutical,
legal, aerospace, insurance and technical publishing, we believe there are tens of millions of users who need capabilities such as
those provided by Acrobat who have not yet licensed an Acrobat solution.
For several years, we have offered additional cloud-based Acrobat services to supplement the features of Acrobat and
provide knowledge workers with centralized online file sharing and storage capabilities, as well as simple PDF creation and
converting PDF to other file formats. With our new Acrobat XI software and its innovative cloud services that were released in
the fourth quarter of fiscal 2012, we've significantly extended the capabilities of our solution. With Acrobat cloud services, users
can take advantage of electronic document signing with Adobe EchoSign, complete form management with Adobe FormsCentral,
and utilize other features such as Adobe SendNow and Acrobat.com.
With Adobe EchoSign, companies can expedite document and web contract approvals. Users of EchoSign can send an
electronic document to others for signing, keep track of who's signed it, and store their signed contracts online. This enables faster,
more efficient and cost-effective customer interaction. Our FormsCentral cloud service enables companies to create, distribute,
and analyze forms without writing code. Templates can be used to build new forms, or users can design forms from scratch. Our
FormsCentral solution collects all responses and helps customers share real-time results with their colleagues. SendNow enables
customers to share large files more easily rather than using email attachments. Acrobat.com provides services to customers so
they can store their documents online and have access to them from virtually anywhere using a computer or mobile device.
Combined, Acrobat and Acrobat cloud services increasingly provide more value to knowledge workers. The cloud services
serve as additional value to Acrobat customers, thereby further entrenching the use of Acrobat and PDF as part of our customers'
day-to-day businesses.
Digital Media Business Summary
In the second quarter of fiscal 2012, we delivered CS6, the newest release of our creative toolset. CS6 provided numerous
feature enhancements, particularly in the areas of mobile device content creation, website development with new HTML5
capabilities, digital imaging, digital publishing for tablets and product performance.
The launch of CS6 was also the cornerstone of our new Creative Cloud subscription offering, which was also delivered in
the second quarter of fiscal 2012. Adoption of Creative Cloud subscriptions in the launch quarter exceeded our expectation as we
believe the value of the new offering was attractive to both existing and new users of our creative tools. We also believe the low
monthly payment options with Creative Cloud, as opposed to paying for perpetual licenses up front, has attracted more pricesensitive customers to license our creative products, as well as migrate existing users to the newest release. In the subsequent third
and fourth quarters of fiscal 2012, we achieved accelerated adoption of Creative Cloud. In each of these three quarters, the success
of Creative Cloud subscription adoption adversely affected reported revenue as we recognize revenue associated with our
subscription offerings ratably whereas revenue associated with our perpetual licenses is generally recognized at the time of initially
licensing the products.
Our DPS solution achieved strong growth in fiscal 2012 based on broad adoption by magazine and newspaper publishers
to deliver engaging, branded reading experiences of their publications to mobile and tablet devices. During the year, we continued
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to innovate with DPS, leveraging new innovations in CS6 products such as Adobe InDesign, to help customers accelerate app
delivery to their readers through app stores. In the Fall of 2012, we delivered an update to our Digital Publishing Single Edition
solution and made it generally available to all Creative Cloud subscribers. This significantly broadened the use of our solution
beyond mainstream publishers.
We drive our DPS revenue through the licensing of software that customers use to create and publish their apps. In addition,
with our Enterprise version, we obtain revenue for each digital edition that is downloaded and delivered through our content
delivery infrastructure. As of the end of fiscal 2012, we have over 1,450 DPS customers, reflecting the success and strong adoption
of our solution. In addition, on average we deliver approximately 163,000 digital issues every day to users of iPads, Kindles and
Android tablets, with more than 53 million digital editions delivered since March of 2011.
In the professional digital imaging market, we released new versions of Adobe Photoshop CS6, Adobe Photoshop CS6
Extended and Adobe Lightroom 4 during fiscal 2012. Ground-breaking features in Photoshop included new Content-Aware
technologies, enhancements in image effects such as Blur Gallery and performance improvements based on updates to the Adobe
Mercury Graphics Engine. Lightroom enhancements included refined technology for superior shadow and highlight processing,
expanded management capabilities including enhanced DSLR video support and the ability to create photo books. To drive increased
adoption of Lightroom, we also lowered the price of the product, which resulted in substantial unit and revenue growth during the
year when compared to fiscal 2011.
With our professional digital video authoring and content creation solutions, including Adobe Premiere Pro and After Effects,
we continued to achieve strong market share and revenue growth during the year due to new CS6 product versions and strong
execution by our sales and marketing teams to position Adobe as a leader in the overall digital video solutions category.
During the fourth quarter of fiscal 2012, we released version 11 of our Adobe Photoshop Elements software which is our
digital imaging application targeted for amateur photographers and digital imaging hobbyists. In the same quarter, we released
version 11 of Adobe Premiere Elements software, which is our video editing software that can be used by hobbyists to enhance
and share their digital video memories on DVDs. We also released a software bundle that includes the new versions of Photoshop
Elements and Premiere Elements to target hobbyists who desire both applications in one affordable package. Adoption of these
new releases helped to drive year-over-year revenue growth in this category.
To help our customers create new content leveraging advancements in web standards, we deliver the Edge Tools & Services,
which included Edge Animate, in the fall of 2012. Edge Animate is our new web motion and interaction design tool that allows
designers to bring animated content to websites, using web standards like HTML5, JavaScript, and CSS3. We also delivered Adobe
Muse, which enables designers to design and publish HTML websites without writing HTML code. Combined, we believe the
customer adoption of these new tools as well as positive customer reactions to innovations we added to our existing web content
creation tools such as Adobe Dreamweaver CS6, has caused the web community to embrace Adobe as a leading provider of HTML
solutions for web content creation.
During fiscal 2012, we advanced the capabilities of our Adobe Flash Player with several new releases. Flash Player is a
cross-platform, browser-based application runtime that provides viewing of expressive applications, content, and videos across
most browsers and PC operating systems. Key features that are driving adoption of Flash in markets such as gaming and premium
video delivery include 3D accelerated graphics support, native 64-bit operating system support, improved software encoding for
cameras and protected HTTP dynamic streaming. Adoption of Flash Player remained strong on PC platforms during fiscal 2012.
Due to the frequent downloads of our client technologies such as Flash Player, we generate revenue through OEM relationships
with companies where we include their technologies as part of the download offerings of our client technologies on PCs. In fiscal
2012, this download revenue grew when compared to fiscal 2011.
In fiscal 2012, we also broadened the reach of Adobe AIR, our cross-platform client technology. The AIR runtime enables
developers to deploy standalone applications built with HTML, JavaScript, ActionScript, Flex, Flash Professional, and Adobe
Flash Builder across platforms and devices—including Android, iOS devices, personal computers and televisions.
To capitalize on the increased use of smartphones and tablets, we released updates of our tablet applications which run on
mobile devices, including Photoshop Touch, which is a popular application and available on devices running Google Android OS
and Apple iOS. In addition, Adobe Revel provides users access to their entire photo library from their Apple devices, along with
photo-processing features based on Lightroom. Both Photoshop Touch and Revel received positive reviews and achieved strong
revenue growth during the year.
In the Document Services market, we achieved solid year-over-year growth during fiscal 2012. This performance was driven
by continued, solid adoption of our Acrobat X release that initially launched in the fourth quarter of fiscal 2010. In the fourth
quarter of fiscal 2012, we released Acrobat XI, the eleventh major version of our Acrobat family of products. Acrobat XI, the
industry standard for PDF software, contains new and improved capabilities that feature complete PDF editing and export to
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Microsoft PowerPoint; touch-friendly capabilities on tablets; and newly integrated cloud services, including sophisticated Web
contracting with Adobe EchoSign and forms creation, data collection and analysis with Adobe FormsCentral. Acrobat XI
additionally supports IT departments with seamless Microsoft Office and SharePoint integration, easy deployment, applications
virtualization and robust application security. Our free Adobe Reader, used by hundreds of millions of people to view and interact
with PDF documents, was also updated to deliver more features to users, and includes full support for non-PC devices such as
iPhones, iPads and Android devices. Our EchoSign service, with its simplistic model that doesn't require scanning software,
signature pads or digital certificates, is used to sign nearly one million contracts per month. In addition to making this service
available to Acrobat XI users, we also integrated it with our Adobe Reader in fiscal 2012.
During the year, continued adoption of our Creative Suite and Creative Cloud products also contributed to broader adoption
of Acrobat in the creative professional market. Utilization of Acrobat prepress, printing and collaboration functionality is a critical
component of creative customer workflows. Acrobat Pro is included in several Creative Suite editions and in Creative Cloud
membership, and these offerings were updated to include Acrobat XI when it was released in the fourth quarter of fiscal 2012.
Digital Media Strategy
In fiscal 2013, we intend to implement strategies which will accelerate the adoption of our Creative Cloud subscription
offering. This includes migrating existing users from their current perpetual licenses, as well as driving new customer adoption.
Aspects of this strategy include increasing the value of Creative Cloud by delivering frequent product updates and enhancements
to subscribers; using promotions to attract customers to the offering; expanding our go-to-market reach through referral affiliate
models to reach new customers particularly in the small and medium business (“SMB”) space; and utilizing Creative Cloud for
teams and Creative Cloud for enterprise offerings to drive broad adoption with customers who license our software in volume.
As part of our Creative Cloud strategy, we also intend to streamline how customers learn about our offering, sign up to use
it, and pay for it. We expect to accomplish these goals by utilizing our digital marketing solutions to drive awareness and customer
conversion on our website. We believe Adobe.com will increasingly be the destination site where we engage individual and small
business customers to sign up for and renew Creative Cloud subscriptions. We also will utilize channel partners such as corporate
resellers to target mid-size creative customers with our Creative Cloud for teams offering, and our direct sales force to build
relationships and drive adoption of our Creative Cloud for enterprise offering with our largest customers.
In digital imaging, we plan to broaden the adoption of our Photoshop Lightroom and Photoshop Elements products, and
use our Revel product for tablets to increase awareness of our image editing and sharing solutions. In interactive development we
will continue to advance the capabilities of our tools to deliver cutting-edge HTML5 capabilities with products such as Edge,
while also investing in improving the capabilities of Adobe Flash in the PC-based gaming market.
In the coming year we also plan to continue to market the benefits of our Document Services solutions to small-and mediumsized businesses, large enterprises and government institutions around the world. With our Acrobat family of products, we intend
to continue to increase our seat penetration in these markets through the utilization of our corporate and volume licensing programs.
We also intend to increase our focus on marketing and licensing Acrobat in targeted vertical markets such as education, financial
services, telecommunications and government, as well as expanding into emerging markets.
We also intend to enhance and build out the delivery of cloud-based document services to our Acrobat and Adobe Reader
users. The release of Acrobat XI included newly integrated cloud services, including sophisticated web contracting with EchoSign
and forms creation, data creation and analysis with FormsCentral. It also includes our SendNow feature which enables users to
deliver large electronic files over the web with security and fidelity.
With the integration of our cloud-based EchoSign solution with our Acrobat family of products, we intend to continue to
promote its capabilities to millions of Acrobat users and hundreds of millions of Adobe Reader users. We believe that by substantially
growing the awareness of Adobe EchoSign in the broader contract delivery and signing market, we can help our customers migrate
away from paper-based overnight express mailing and adopt our solution, substantially growing our revenue with this business
in the process.
Digital Marketing Segment
Digital Marketing Opportunity
Consumers today can interact with businesses across multiple channels and devices, and it is up to businesses to figure out
how to best attract, engage, acquire and retain customers in a world where the reach and quality of experiences directly impact
success. Marketing executives need to know that their investment is optimizing consumers' experiences and delivering the greatest
return on our customers' marketing spend. Online marketing goals must map clearly to overarching business objectives, and
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marketing executives are expected to demonstrate the success of their programs using solid metrics. In this environment, gleaning
insight in real time across channels is essential.
We believe there is a significant opportunity to address these challenges and help customers transform their businesses.
This market opportunity is accelerating as Chief Marketing Officers (“CMOs”), digital marketers, heads of digital, advertisers
and publishers are managing spending budgets to migrate their marketing and advertising spend to digital media.
These users are faced with several major market trends, and their choices for how they address these challenges are creating
broad opportunities for our Digital Marketing business:
•
Broad commercial utilization of the internet
The internet has fundamentally altered the way businesses and consumers purchase and consume goods and
services. It has also redefined many business processes and has created opportunities for new online businesses, as
well as for existing offline businesses seeking to capitalize on online initiatives. Because of this, businesses are investing
in innovative online initiatives to increase sales, improve customer service, enhance brand awareness, decrease timeto-market for their offerings, reduce fulfillment costs and increase operational efficiency.
We expect that the scope and scale of commercial internet usage will continue to increase. The roll-out of
broadband and mobile networks, particularly in emerging geographic markets, will contribute to the growth of internet
usage. Internet commerce should also continue to grow. Proliferation of online marketing and customer response
channels, such as mobile, digital video and social networks, will continue to generate interactions that need to be
measured, analyzed and optimized across channels.
•
Need to measure online business
In order to make informed decisions about priorities and investments in online marketing and other commercial
initiatives, we believe businesses require timely and accurate measurement of customer behavior. The proliferation of
internet usage and the fact that nearly every user interaction on a website (or other digital medium such as mobile apps,
set-top boxes, kiosks, point of sale systems or any IP connected device) can be captured by the owner of the website,
or other digital medium, has resulted in the creation of an unprecedented amount of data about how a business' customers
interact and transact business with it.
Businesses are increasingly realizing the benefit of using information gained from online and other digital
customer interactions to improve functional areas, such as sales, customer service, product development, marketing,
pricing, manufacturing and inventory management. The interactive and measurable nature of internet activity also
enables businesses to determine how customers arrived at their online destinations, such as through paid search, a
display ad or a social media website. It also enables businesses to determine which advertising mediums are yielding
the greatest ROI, including whether visitors convert to customers once they have reached their destination site.
•
Opportunity to optimize and automate online business
Measuring online activity and automating the capture and analysis of data are important for making informed
business decisions. Businesses also need to leverage data to optimize the results of their online business activities. For
example, businesses have historically measured the success of their online marketing programs by simple click-through
rates or conversion rates, the latter being the percentage of click-through users who make a purchase or otherwise
engage in the desired customer action during the online session. However, the effectiveness of online marketing can
be optimized by analyzing and acting on deeper information, such as repeat visits, transactions generated, registrations,
traffic pathways (various paths of online visitor traffic flow), time spent and quality of interaction (engagement),
eventual conversion (desired customer action taken in subsequent visits) or success over time (lifetime value of
customer) as well as comparing the relative effectiveness of different marketing channels (attribution).
Business success metrics can also vary based on the industry or vertical market—for example, media companies
drive engagement to optimize subscriptions and online advertising revenue, whereas retailers and e-commerce
companies focus on promotions and maximizing online purchases. Online businesses utilize a large and growing number
of complex and diverse advertising and communication channels to market to customers, including display advertising,
paid and natural search advertising, e-mail, social media marketing, affiliate marketing, blogs, podcasts, video, games,
rich internet applications (“RIAs”) and comparison shopping engines, as well as traditional offline initiatives.
The emergence of multi-channel marketing initiatives, which combine traditional offline marketing initiatives
such as television, print, magazine, newspapers, radio and catalog with online marketing initiatives, makes the
measurement and analysis of online activity more challenging, but presents additional opportunities to optimize results.
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For example, businesses want to measure and understand the impact of their advertising initiatives across all these
channels, not only to determine how much credit should be given to a particular channel and to understand crosspromotional effectiveness, but more importantly to optimize their advertising spending and make adjustments in the
way channels are utilized and align the amount of resources that are allocated to each of them.
•
Delivery of premium video through online channels
Media companies face a shifting landscape as traditional media delivery evolves into multiple channels for
media companies to deliver and monetize their content. As more premium video content and entertainment is delivered
over the internet to PC, smartphone and tablet screens, as well as internet-connected TVs, media companies are looking
to create new revenue streams through subscription services and ad-based revenue models to supplement their historical
forms of revenue. This trend and the general explosion of video being created and delivered over the web is expanding
the online video market opportunity to include fast growing areas such as video delivery, authentication and
monetization.
To address the challenges and capitalize on the opportunities presented in the market trends above, CMOs, digital marketers,
advertisers and publishers require new content architectures, new analytic systems, new media buying systems and optimization
systems to increase the effectiveness of their engagement with customers.
Driving visitor traffic to websites, broadly defined as a customer's digital presence, including its traditional site, mobile
site, pages and apps on social networks, and all other content that is distributed throughout the internet, was an early goal of digital
marketing spend. This goal has broadened to include the need to measure and understand customer web traffic patterns and the
effectiveness of their visitor acquisition efforts. Web analytics solutions have provided insight for digital marketers and web
analysts that helps them optimize their online ad spending. Moving forward, the goals of digital marketers have evolved to include
how websites and marketing campaigns can convert visitors to customers, and how these websites and marketing campaigns can
be more personalized to drive better engagement and higher revenue.
Our Digital Marketing Business Unit targets this large and growing opportunity by providing comprehensive solutions that
include analytics, social, targeting, media optimization and experience management solutions, and premium video delivery and
monetization products, solutions and services. We deliver these capabilities through our Adobe Marketing Cloud, which is our
umbrella digital marketing offering and was formerly branded as the Adobe Digital Marketing Suite.
Adobe Marketing Cloud is a collection of analytics, social, targeting, media optimization and experience management
solutions and a real-time dashboard providing insight into the performance of online marketing initiatives. These capabilities
empower organizations to make informed decisions and ensure the success of online marketing programs for both advertisers and
publishers. Our digital marketing customers accomplish these goals with Adobe Marketing Cloud solutions which help them
manage and optimize online, offline, digital and multi-channel business initiatives.
Other key features of our Adobe Marketing Cloud include:
•
Enabling digital marketers to align online marketing initiatives with overarching business objectives and demonstrate
the success of online marketing programs using metrics;
•
Managing, collecting, and bringing data together from multiple systems into a flexible, integrated platform;
•
Providing real-time business intelligence through segmentation, dashboards and reports that managers can use to gain
a complete picture of how consumers are interacting with the business;
•
Creating the ability to monetize and share data through audience optimization capabilities, publishers can quickly
identify audiences that match the profiles that advertisers are demanding-and maximize the value of their digital assets;
•
Optimizing ad spend by maximizing the impact of a company's advertising spend across and within channels, including
search, display, video, mobile, social media and other digitally connected forms of media, to yield the greatest returns;
•
Delivering relevant and engaging digital content across channels that boosts key performance metrics, whether it is a
customer purchase, engagement, a download, form completion, or other desired outcome; and
•
Empowering organizations to re-platform their websites by enabling them to create, manage, distribute, and monetize
content while optimizing the web, mobile, and social collaboration experience for their customers. More specifically,
organizations can enable the delivery of customer-facing web and mobile solutions by extending enterprise services
beyond interactive applications, documents, and workflows to include personalization of content, rich media delivery
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capabilities, mobile application delivery, social collaboration and deep integration into back-office systems such as ecommerce platforms.
In addition to CMOs and digital marketers, users of our Adobe Marketing Cloud solutions include marketing professionals
such as search engine marketers, media managers, media buyers and marketing research analysts. Customers also include web
content editors, web analysts and web marketing managers. These customers often are involved in workflows that utilize other
Adobe products, such as our digital media tools and our video workflow and delivery technologies.
Given the market trends described above, we believe the combination of our Adobe Creative Cloud and Adobe Marketing
Cloud solutions helps customers to more efficiently and effectively create, measure, analyze and optimize those experiences,
creating an end-to-end workflow and feedback loop.
With our growing leadership position in video authoring, which is discussed in the “Digital Media Opportunity” section
above, we have worked closely with our customers to build out a more complete workflow to meet their additional needs for
delivering, measuring and monetizing their video assets. During fiscal 2012 we moved the management of our video content
delivery, authentication and monetization solutions to our Digital Marketing business unit based on our goal of aligning these
teams with our overall digital marketing focus.
For content delivery, we provide Adobe Media Server software, which helps premium content publishers deliver their HD
quality video to the largest audience possible across any internet-connected device, with a streamlined workflow. The Adobe Media
Server family has revolutionized media delivery with support for consistent, protected streaming on the widest array of devices
—tablets, mobile devices, connected TVs, and desktops.
Our Adobe Pass solution enables the industry goal known as “TV Everywhere” and allows pay TV customers to enjoy
content on their connected devices. Adobe Pass is licensed by media companies and verifies a user's entitlement to content simply
and securely, allowing quick time to market, a more secure environment, and more readily accessible content.
Similarly, our Adobe Access (formerly Adobe Flash Access) software provides a scalable, efficient workflow to help
customers deliver and protect premium video across desktops, mobile devices, and platforms, including iOS and Android. Adobe
Access is also an UltraViolet approved Digital Rights Management (“DRM”) technology. It extends audience reach and enables
a variety of business models for media companies, including rental, subscription, and electronic sell-through.
Our Adobe Auditude solution is a video advertising platform that powers the video advertising experience for Adobe
customers such as major media companies. With Auditude, advertisers can leverage professional TV-like video ad inventory for
advertising in on-demand video delivery, live digital events and full episode video content. The solution is further enhanced with
rich analytics, enabling our customers with robust ad serving and optimization capabilities that maximize the value of video content
on any device.
In January of 2012 we introduced Project Primetime, which is a unified, end-to-end video platform that helps media
companies achieve broadcast audience reach, lower their operating costs, and boost revenue from ad sales. Project Primetime links
Adobe streaming, DRM, ad serving, audience management, analytics, and optimization technologies that are available in our
Media Server, Adobe Access, Auditude and other digital marketing offerings.
Our success in these areas has enabled our entry into the video advertising market. Our Adobe Video Advertising solution
has become a central source for broadcast and professional video inventory. With a focus on premium television-quality video,
we help customers deliver high quality ad placements in their online video delivery. Adobe Video Advertising offers a TV-like
experience with true commercial breaks during live sports, music, and news programs as well as during full episode viewing from
our premium content partners. Our solution leverages our digital marketing products such as Adobe AudienceManager, and enables
the use of premium ads with innovative ad executions and TV-like ad insertion within live, simulcast, and on-demand video.
Digital Marketing Business Summary
Our Digital Marketing segment contains revenue from multiple product families, including our digital marketing products
and solutions, as well as legacy enterprise software offerings. As we exited fiscal 2012 we rebranded our Digital Marketing Suite
to be called Adobe Marketing Cloud, and organized our product portfolio into five key solutions—Analytics, Target, Social, Media
Optimizer, Experience Manager—containing multiple products to address specific marketing opportunities. In addition, we
consider Video to be an emerging solution in our Adobe Marketing Cloud.
In fiscal 2012, we achieved strong year-over-year revenue growth with our Adobe Marketing Cloud products and solutions.
Our acquisition of Efficient Frontier in the first quarter of fiscal 2012 helped to drive revenue growth during the year. In the fall
of 2012 we rebranded Efficient Frontier as Adobe AdLens.
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Driving the growth with our Adobe Marketing Cloud product family was continued adoption of Adobe SiteCatalyst and
our Adobe CQ5 Web Experience Management (“WEM”) solution now known as Experience Manager. With SiteCatalyst we help
our customers track more than six trillion transactions per year in a hosted environment around the world. An increasing percentage
of these transactions are from non-PC devices including tablets and smartphones. Our market-leading Experience Manager solution
combines Web Content Management, Digital Asset Management (“DAM”) and social collaboration offerings, and enabled our
sales force to target organizations that need to transform their websites by enabling them to create, manage, distribute, and monetize
content while optimizing the web, mobile, and social collaboration experience for their customers.
In the online video and rich media delivery market, we continued our momentum in the industry by achieving strong
customer adoption and revenue growth with our video solutions. In the first quarter of fiscal 2012, we unveiled Project Primetime,
the industry's first fully integrated video technology platform. Project Primetime enables smooth, TV-like experiences for adsupported videos across Web-connected devices. This new platform delivers premium video and ad content consistently across
all major platforms, including Apple iOS, Google Android, desktop operating systems and connected TVs. Our solution creates
a single, end-to-end workflow that interconnects our streaming technologies and content protection based on Adobe Media Server,
authentication capabilities using Adobe Pass, analytics based on our digital marketing web analytics capabilities, and ad delivery
and optimization with our Auditude video advertising platform. This solution enables premium video providers to give customers
a superior viewing experience through seamless dynamic ad insertion into any content type, whether linear, live or on-demand
across Web-connected devices, and was integral in many global media companies making the 2012 Olympic games available to
mobile and tablet users.
In late fiscal 2011 we announced we would narrow the focus of our Adobe LiveCycle and Adobe Connect product families
towards the government and financial services markets. At that time we also announced we expected revenue in these product
areas to decline, and in fiscal 2012 combined revenue for LiveCycle and Adobe Connect did decline. However, the extent of the
revenue decline was less than we targeted for the year, due to continued solid demand for these products.
Digital Marketing Strategy
In fiscal 2013, we plan to build upon the momentum we achieved in fiscal 2012 by aligning our digital marketing focus
with Adobe Marketing Cloud around five key solutions:
•
Adobe Analytics—combines the power of actionable analytics and audience segmentation with the distributed value
of reporting and sharing of key business analysis and connects it for data driven marketing. This solution includes our
DataWarehouse, Adobe Discover, Adobe Genesis, Adobe Insight, Adobe ReportBuilder, SiteCatalyst and Adobe
TagManager products.
•
Adobe Experience Manager—a web content management platform that enables organizations to deliver carefully
tailored customer experiences across web and mobile channels. This solution is based on our WEM offering.
•
Adobe Media Optimizer—combines best of breed portfolio and rules based ad management with intelligent campaign
forecasting and targeted ad delivery for data optimized advertising. This solution includes our AdLens and Adobe
AudienceManager products, and analytics capabilities from SiteCatalyst.
•
Adobe Social—helps organizations measure and manage marketing activities across owned, earned, and paid media,
ensuring the impact of social is properly attributed. This solution includes our Context Optional and Adobe
SocialAnalytics products.
•
Adobe Target—helps organizations dynamically test and present highly customized experiences to a digital property
in order to drive significantly higher conversion rates. This solution includes our Adobe Recommendations, Adobe
Search&Promote, Adobe Test&Target and Adobe Test&Target 1:1 products.
With Adobe Analytics, we will focus on helping our customers understand the performance of their business across all
digital channels and support their needs for integrating offline channels. Customers want to know how their campaigns are
performing across video, social, mobile and email, and look at that performance holistically. To do this, they require an analytics
platform that can assemble data across all those channels to gain better insight and drive informed decision making.
Personalized engagement is a priority for digital marketers; once they attract visitors to their websites, they desire to create
the best possible experience. With our Adobe Experience Manager solution we provide an integrated suite of tools that include
analytics data, content management and web optimization solutions. Our solution enables digital marketing customers to personalize
the experiences of visitors to their websites in ways that are dynamic and relevant to each visitor. Experience Manager helps
marketers author, manage and deliver personalized experiences based on many criteria, including analytics data related to a visitor's
prior visits to a site, or based on their purchasing history, or what keyword they clicked on in a web search that brought them to
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a site or in many cases, to a distributed part of its site such as a social network page or app for that customer. With personalized
engagement made possible through Experience Manager, marketers can also build a better brand presence, drive demand by quickly
creating, launching, and optimizing compelling online marketing campaigns, and extending their reach with their customers through
multiple online channels.
The more digital marketers can know about their customers, the more effectively they can reach them with targeted
advertising and offers to increase visitor acquisition and conversion through their websites. We provide Adobe Media Optimizer,
which combines portfolio and rules-based ad management with intelligent campaign forecasting and targeted ad delivery for data
optimized advertising. Our Media Optimizer solution includes our Adobe AdLens (formerly Efficient Frontier), Adobe
AudienceManager and Adobe SiteCatalyst products to give marketers a complete view of their online marketing campaign
performance across search, display and social channels. This enables deeper and more relevant insights into how their customers
are interacting with their brand. It also gives them the data they need to segment those who are still browsing on their sites, and
the data on those who are ready to buy—allowing marketers to deliver the appropriate messages or marketing offers at the
appropriate time.
Our Adobe Social solution enables marketers to simplify and measure their social marketing efforts. Our offering is an
integrated suite of products including Context Optional and SocialAnalytics, and the ability to perform ad buying via AdLens.
Combined, our solution enables marketers to create content once and push it out to social media channels such as Facebook,
Twitter, Google+, and others quickly and easily. We extend these capabilities to include the ability to find out what content is
resonating with marketers' customers or constituents, and help them migrate visitors into destinations such as high-profile Facebook
Sponsored Stories. Adobe Social helps marketers determine if their paid media is pushing traffic to their social networks. It also
provides them insights into their customers' audience, using real-time data to find out what gets their social communities talking.
With this information, marketers can keep their social audiences engaged by creating more targeted content and experiences to
drive positive impact on their business. From messaging and offers to media buys and influencers, Adobe Social gives marketers
key information about what's driving results.
Adobe Target helps organizations drive higher conversion rates on their websites. Our solution enables digital marketers
to create, dynamically serve, and continually optimize personalized messages through the use of integrated products such as Adobe
Test&Target, Adobe Recommendations and Adobe Search&Promote. With Adobe Target, marketers can learn more about their
customers so they can evolve from marketing messages for broader segments to those relevant to individual visitors. Our offering
also uses a robust data-driven approach that unifies internal and third-party data to create highly detailed customer profiles that
help marketers deliver the appropriate marketing messages in front of the right people. With these capabilities, customers can
optimize their website and digital marketing efforts to maximize their revenue by controlling, monitoring and altering their
personalization strategies through built-in testing. Through these features, marketers can also drive higher levels of customer
engagement, conversion, and loyalty.
As part of our digital marketing initiatives, we intend to streamline how customers learn about, acquire and deploy Adobe
Marketing Cloud solutions. We also believe we can accelerate the growth of our business by expanding our go-to-market strategy
to include new geographies and vertical markets where Adobe has a strong presence. In fiscal 2012 we began to build out more
sales capacity and resources to support them in our field organization. We believe these investments will drive higher international
revenue in our Digital Marketing segment in fiscal 2013 and beyond.
With our Project Primetime initiative and set of products to help media and entertainment companies monetize their premium
video assets, we will continue to invest in the build out and licensing of our solution. As part of this effort, we intend to expand
our focus into new geographic markets in the coming year.
In the fall of 2011, we announced we would narrow our focus with our Adobe LiveCycle and Adobe Connect offerings on
two key vertical industries: financial services and government. For these customers, we offer comprehensive, scalable, secure and
reliable server products, SaaS offerings and tools to develop applications tailored to their specific information and business process
requirements. In fiscal 2013 we will continue to target these vertical markets.
With our LiveCycle offerings, we enable our customers to eliminate paper and move to automated forms-based workflows,
which continue to be key challenges in enterprises and governments around the world. Paper remains prevalent throughout industries
and governments, and many organizations are seeking to drive down operational costs related to paper use and workflows involving
paper-based documents. During the past decade, there has been considerable progress made towards moving away from paperbased workflows. However, we believe there still remains a significant opportunity to deliver solutions that focus on this opportunity,
particularly in the government and financial services categories.
Adobe Connect provides capabilities for live web conferencing, as well as delivering on-demand rich presentations through
an on-premise server or as a hosted service and for recording and delivering such content later. Web conferencing services are
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provided via the ubiquitous Adobe Flash Player client on PCs, as well as through smartphone and tablet device applications running
natively on operating systems such as Apple iOS and Android.
Print and Publishing Segment
Print and Publishing Opportunity
Our Print and Publishing business segment contains several of our products and services that address diverse market
opportunities including eLearning solutions, technical document publishing, web application development and high-end printing.
These opportunities and the key products we offer to address them in fiscal 2013 are reviewed below.
Graphics professionals and professional publishers continue to require quality, reliability and efficiency in production
printing, and we believe our Adobe PostScript and Adobe PDF printing technologies provide advanced functionality to meet the
sophisticated requirements of this marketplace. As high-end printing systems evolve and transition to fully digital, composite
workflows, we believe we are uniquely positioned to be a supplier of software and technology based on the PostScript and Adobe
PDF standards for use by this industry. We generate revenue by licensing our technology to OEMs that manufacture workflow
software, printers and other output devices, and in fiscal 2012, we maintained our OEM PostScript revenue through continued
innovation with PostScript technologies.
eLearning solutions are becoming more prevalent as a means to create and deliver online and electronic learning experiences.
These experiences range from online assessments, surveys and quizzes–to online reference and instruction manuals–to real time
learning and web-based collaboration experiences. We believe we have a rich legacy in the development and delivery of eLearning
tools, and can innovate by providing new features and platform reach for eLearning content delivery with our set of offerings.
Our ColdFusion offering provides fast and easy ways to build and deploy powerful internet applications. Developers can
extend or integrate ColdFusion with Java or .NET applications, connect to enterprise data and applications, create and interact via
web services, or interface with SMS on mobile devices or instant messaging clients. ColdFusion can also be used for business
reporting, rich-forms generation, printable document generation, full-text search and graphing and charting, enabling customers
to more fully engage their constituents with better web experiences.
We generate revenue by licensing our technology to OEMs that manufacture workflow software, printers and other output
devices. In fiscal 2013, we plan to continue to enhance PostScript as well as utilize PDF enhancements to maintain these formats
as standards in publishing and printing work flows.
Print and Publishing Business Summary
In fiscal 2012, we maintained a consistent quarterly revenue run-rate with the mature products we market and license in
our Print and Publishing business. During the year we delivered version 4 of our Adobe Technical Communication Suite, which
is a set of tools for technical publishing. We also released version 6 of our Adobe eLearning Suite, which is a set of tools for
creating professional eLearning courseware and includes Adobe Captivate version 6 and Adobe Presenter version 8. In fiscal 2012,
we maintained our OEM PostScript revenue through continued innovation with PostScript technologies.
Print and Publishing Strategy
In fiscal 2013 we will continue our focus on addressing the needs of our Print and Publishing customers. More specifically,
in the eLearning market we will innovate around our broad set of tools to help authors of eLearning materials deliver their content
in new and more engaging ways, leveraging the adoption of tablet devices in schools and educational institutions. We will also
update several of our legacy products to keep customers current with solutions and features they need based on the Print and
Publishing products they use.
Fiscal 2013 Business Segment Products and Services
Digital Media—Creative Products
Adobe After Effects—software used to create sophisticated animation, motion graphics and visual effects found in television
broadcast, film, DVD authoring and the web; provides 2D and 3D compositing, animation and visual effects tools, as well as
advanced features such as motion tracking and stabilization, advanced keying and warping tools, and more than 250 additional
visual and additional audio effects.
Adobe Anywhere—hosted software which enables video teams to collaborate and develop video content, using access to
shared media across standard networks virtually anywhere they have internet connectivity.
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Adobe Audition—a professional audio editing environment designed for demanding audio and video professionals; provides
high-performance, intuitive tools for audio editing, mixing, restoration, and effects.
Adobe Business Catalyst—an online business solution that provides an all-in-one capability to develop and maintain
dynamic websites and powerful online stores with an integrated customer database, email marketing, e-commerce and analytics;
integrates with Dreamweaver and Adobe Muse for seamless website creation and publishing; a Business Catalyst webBasics
offering is included as part of Creative Cloud membership.
Adobe Creative Cloud—a new, comprehensive offering of creative services, Creative Suite desktop applications, and
collaboration and sharing features that is offered on a subscription basis; membership to Creative Cloud enables users to download
and install any of the Creative Suite desktop applications, plus other applications such as Acrobat and Photoshop Lightroom;
subscribers also receive the latest apps and newest features as soon as they're released; Creative Cloud membership includes 20GB
of cloud-based storage and device syncing capabilities, enabling members to easily access and share their work; it also includes
the ability to publish websites using our Business Catalyst hosting service, and the ability to publish mobile apps using our DPS,
Single Edition and PhoneGap Build services.
Adobe Creative Suite Design & Web Premium—an integrated software solution that creative professionals can use as a
platform for print, web and mobile content publishing; combines Acrobat Pro, Dreamweaver, Flash Professional, Adobe Fireworks,
Illustrator, InDesign and Photoshop Extended technologies with a file management and control center called Adobe Bridge;
integrates with Adobe Digital Publishing Suite.
Adobe Creative Suite Design Standard—an integrated software solution that creative professionals can utilize for
professional design and print production, page layout, image editing, illustration and Adobe PDF workflows; combines Acrobat
Pro, Illustrator, InDesign and Photoshop technologies with a file management and control center called Adobe Bridge; integrates
with Adobe Digital Publishing Suite.
Adobe Creative Suite Master Collection—an integrated software solution which provides all the tools creative professionals
require to create content for every design discipline in one offering; provides capabilities for professional page layout, image
editing, vector illustration, print production, website design/development, rich interactive content creation, visual effects and
motion graphics, video capture/editing/production, DVD titling and digital audio production; includes Acrobat Pro, After Effects,
Audition, Dreamweaver, Adobe Encore, Fireworks, Flash Builder, Flash Professional, Illustrator, InDesign, Photoshop Extended,
Prelude, Adobe Premiere Pro and Adobe SpeedGrade technologies, with a file management and control center called Adobe Bridge;
integrates with Adobe Digital Publishing Suite.
Adobe Creative Suite Production Premium—an integrated software solution that provides creative professionals a complete
post-production solution consisting of video, audio and design tools that can be utilized to create and deliver content to film, video,
DVD, Blu-ray Disc, television broadcast, and web and mobile devices; combines Adobe Premiere Pro, After Effects, Adobe
Audition, Encore, Photoshop Extended, Flash Professional, Illustrator and Adobe Media Encoder technologies with a file
management and control center called Adobe Bridge; integrates with Adobe Story.
Adobe Digital Publishing Suite—an integrated, online, hosted publishing solution for individual designers, traditional media
publishers, ad agencies, and companies of all sizes that want to create, distribute, monetize, and optimize engaging content and
publications for tablet devices; enables magazine and newspaper publishers, as well as individuals, to deliver engaging, branded
reading experiences of their publications to an extensive array of mobile and tablet devices; combines hosted services, flexible ecommerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces, and analytics
capabilities based on Adobe Marketing Cloud; content is created and enhanced through integration with Creative Suite to enable
a complete workflow for the creation and delivery of content to mobile device users via our new Content Viewer technology.
Adobe Dreamweaver—a professional software development application used by designers and developers to create and
edit HTML websites and mobile apps; provides a broad range of capabilities for web publishing, enabling online commerce, and
providing online customer service and educational content; includes capabilities for visually designing HTML5 pages, coding
HTML5 and application logic.
Adobe Edge Tools & Services—new web tools and services which include: Edge Animate, a web motion and interaction
design tool that allows designers to create animated content for websites, using web standards like HTML5, JavaScript and CSS3;
Edge Inspect, an inspection and preview tool that allows front-end web developers and designers to efficiently preview and debug
HTML content on mobile devices; Edge Code, a code editor, built on the Brackets open source project, optimized for web designers
and developers working with HTML, CSS and JavaScript; Edge Reflow, a web design tool to help users create responsive layouts
and visual designs with CSS; Edge Web Fonts, a free web font service for using a growing library of open source fonts on websites
and in apps; Typekit, a service that gives designers and developers access to a library of hosted, high-quality fonts to use on their
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websites; and PhoneGap Build, a service for packaging mobile apps built with HTML, CSS and JavaScript for popular mobile
platforms.
Adobe Encore—professional DVD authoring and creation software that is included as part of Adobe Premiere Pro; provides
a comprehensive set of design tools and integration with other Adobe software to create a streamlined DVD creation workflow;
provides ability to output projects to recordable DVD formats including Blu-ray, ensuring a wide degree of playback compatibility.
Adobe Fireworks—a professional graphics design tool that allows users to create designs for websites and mobile apps
quickly, without coding; enables the development and delivery of vector and bitmap images, mockups, 3D graphics, and interactive
content for popular tablets and smartphones; integrates with Dreamweaver, Flash and Photoshop, and supports AIR application
development.
Adobe Flash Professional—provides an advanced development environment for creating internet applications which
integrate animations, motion graphics, sound, text and additional video functionality; solutions built with Flash Professional are
deployed via the web to browsers that run Adobe Flash Player, and to devices as installable applications using Adobe AIR. The
Toolkit for CreateJS, which was included in Flash Professional CS6, introduces the ability to use Flash Professional to create and
publish interactive content for the standards-based web using HTML and JavaScript without any need for the Flash Player or AIR.
Adobe Illustrator—a vector-based illustration design tool used to create compelling graphic artwork for print publications,
websites and video production.
Adobe InCopy—a professional writing and editing solution that tightly integrates with Adobe InDesign software to enable
an efficient collaborative workflow between design and editorial staff.
Adobe InDesign—a page layout application for publishing professionals; based on an open, object-oriented architecture
that enables Adobe and its industry partners to deliver powerful publishing solutions for printed and digital magazine, newspaper
and other publishing applications.
Adobe InDesign Server—delivers a robust and scalable engine that leverages the design, layout, and typographical
capabilities of Adobe InDesign software to enable third-party systems integrators and developers to programmatically create
engaging automated documents; enables Adobe partners to provide new levels of automation and efficiency in high-end editorial
workflows, collateral creation, variable data publishing and web-based design solutions.
Adobe Muse—new offering available through subscription and Creative Cloud which enables designers to create HTML
websites like they would design print layouts, without having to write code; websites can be published with Adobe Business
Catalyst service or any hosting provider.
Adobe Photoshop—provides photo design, enhancement and editing capabilities for print, the web and multimedia; used
by graphic designers, professional photographers, web designers, professional publishers and video professionals, as well as
amateur photographers and digital imaging hobbyists.
Adobe Photoshop Elements—offers powerful yet easy-to-use photo editing functionality plus intuitive organizing, printing
and sharing capabilities for amateur photographers and hobbyists who want to create professional-quality images for print and the
web.
Adobe Photoshop Extended—provides the capabilities of Photoshop, plus additional tools for editing 3D and motion-based
content and performing image analysis; targeted for: film, video and multimedia professionals; graphic and web designers using
3D and motion; manufacturing professionals; medical professionals; architects and engineers; and scientific researchers.
Adobe Photoshop Lightroom—software designed for professional photographers and photo hobbyists, it addresses their
unique photography workflow needs by providing more efficient and powerful ways to import, select, develop and showcase large
volumes of digital images.
Adobe Prelude—software used by video professionals to streamline post-production tasks; integrates with other Adobe
video software including Adobe Premiere Pro, and is included in several configurations of Creative Suite.
Adobe Premiere Elements—a powerful yet easy-to-use video-editing software for home video editing; provides tools for
hobbyists to quickly edit and enhance video footage with fun effects and transitions and create custom DVDs for sharing video
with friends and family.
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Adobe Premiere Express—hosted software service based on Adobe Premiere technology that provides video editing and
video remix capabilities; licensed by customers such as those running media portals to provide consumers with embedded access
to industry leading Adobe video editing and enhancement technologies.
Adobe Premiere Pro—professional digital video editing software used to create broadcast quality content for video, film,
DVD, multimedia and streaming over the web; includes Adobe Encore for professional DVD authoring and creation.
Adobe SpeedGrade—new software used by video professionals to color grade their video within video production
workflows; integrates with other Adobe video software including Adobe Premiere Pro, and is included in several configurations
of Creative Suite.
Adobe Story—an online collaborative script development tool made available as a hosted service; enables writers to author
scripts quickly with automatic formatting, and collaborate online. used to begin the planning and preproduction phase of video
workflows to be integrated with other Adobe products; developed to create more efficient video production workflows while
reducing production costs; automatically turns content in scripts into relevant metadata that can be used throughout the Adobe
digital video workflow; offered in two versions: Adobe Story Free and Adobe Story Plus.
Adobe Typekit—subscription-based cloud service that provides the delivery of hosted, high-quality fonts for use on websites;
enables designers and developers to deliver beautiful type that enhances the web experience; Typekit fonts are offered as a standalone
service, as part of Edge Tools and Services, and as part of Adobe's Creative Cloud service.
Adobe Visual Communicator—software used to create newscast-style video presentations that can be delivered digitally;
provides a teleprompter, video creation capabilities, and an entire library of customizable graphics, effects, titles, music, and
templates; can be used to convert a Microsoft PowerPoint presentation into a narrated video that can be posted online; can also
be used to self-produce video broadcasts, conferences, distance learning courses, campus-wide newscasts, and more.
Digital Media—Touch App Products
Adobe Revel—touch-based photo app and service for Mac, iPad, and iPhone users; gives users access to their photo libraries
from multiple devices no matter which one they are using; allows users to utilize powerful photo-processing technology based on
Adobe Photoshop Lightroom software to enhance their images.
Adobe Ideas—a vector-based sketching app designed to enable creative professionals to capture their ideas and be a
companion tool for other professional design applications from Adobe, including Illustrator and Photoshop; available for the
iPhone and iPad.
Adobe Photoshop Touch—touch-based iPad and Android tablet app; enables users to edit images and apply professional
effects using core Photoshop features, and then digitally share the results through social networking sites like Facebook.
Digital Media—Developer and Platform Products
Adobe AIR—client software and packaging technology that allows developers to use existing web development skills (e.g.
HTML, Ajax, Flash and Flex) to build and deploy standalone applications (RIAs) on PCs and mobile devices.
Adobe Flash Builder—a cross-platform development environment based on Eclipse for building games and applications
in Actionscript and using the open-source Flex framework; enables developers to develop apps and games for browsers, PCs and
mobile devices.
Adobe Flash Player—the most widely distributed rich client software on PCs and consumer electronic devices; provides a
runtime environment for text, graphics, animations, sound, video, application forms and two-way communications.
Adobe Flash Platform Services—services that enable developers and publishers to distribute and monetize applications
across multiple distribution channels.
Adobe Flex—a free, open source framework for building applications that deploy consistently on major browsers, desktops,
and computer operating systems by leveraging the Adobe Flash Player and Adobe AIR runtimes. Adobe Flex 4.6 was the final
release by Adobe. All subsequent versions are released by the Apache Software Foundation following Adobe's contribution of
Flex to Apache.
Adobe PhoneGap—PhoneGap is a free, open source framework for building cross-platform mobile applications using
HTML, CSS and JavaScript that run on popular mobile operating systems such as Android, iOS and BlackBerry; PhoneGap Build
is our solution to assist developers with creating mobile applications which leverage the open source framework; it is offered as
a standalone solution and as part of our Adobe Edge Tools & Services.
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Digital Media—Acrobat and Document Services Products
Adobe Acrobat Standard—software that creates secure, reliable and compact Adobe PDF documents from desktop authoring
applications such as Microsoft Office software, graphics applications and more; supports automated collaborative workflows with
a rich set of commenting tools and review tracking features; includes everything needed to create and distribute rich electronic
documents that can be viewed easily within leading web browsers or on computer desktops via the free Adobe Reader.
Adobe Acrobat Pro—in addition to all the capabilities of Acrobat Standard, Acrobat Pro delivers specialized capabilities
for creative professional and engineering users, such as pre-flighting, color separation and measuring tools; also allows users to
insert Flash video or H.264 video for direct playback in the most recent versions of Adobe Acrobat and Adobe Reader software,
create dynamic HTML and PDF forms with Adobe FormsCentral that is included with Acrobat Pro, ad hoc form distribution and
data collection, and create Adobe PDF documents that enable Adobe Reader users to digitally sign Adobe PDF documents,
participate in a shared review and fill and save in forms.
Adobe Acrobat.com—an online collaboration service which provides simple web conferencing, centralized online file
sharing and storage capabilities, and online collaborative applications like a word processor and a spreadsheet authoring tool.
Adobe CreatePDF—an online PDF file creation service that provides easy conversion of almost all document files to Adobe
PDF for the secure and reliable sharing of rich electronic documents that can be viewed easily within leading web browsers or on
computers via the free Adobe Reader.
Adobe EchoSign—offered as part of Adobe's online document exchange services platform, EchoSign enables customers
to electronically sign documents via a simple cloud-based service.
Adobe SendNow—an online file sharing service that lets users send, share, and track files online, even large ones, without
the complications of email size restrictions, multiple email attachments, FTP sites, and overnight shipping services.
Adobe Reader—software for reliable viewing, searching, reviewing and printing of Adobe PDF documents on a variety of
hardware and operating system platforms; when used with certain Adobe PDF documents created with Adobe LiveCycle Reader
Extensions Server software, Acrobat Pro or Acrobat Pro Extended, Adobe Reader also can be used to enable collaborative workflows
through the addition of collaboration features built into the Adobe PDF document; these features include review and markup tools
that normally are not present in the standard Adobe Reader product.
Adobe Marketing Cloud Solutions
We offer the Adobe Marketing Cloud, our set of digital marketing solutions and services used to manage and enhance online,
offline and multi-channel business initiatives, which we host and deliver to our customers on-demand and also provide as an onpremise solution for some products.
Our Adobe Marketing Cloud solutions include a complete set of analytics, social, advertising, targeting and Web Experience
Management solutions and a real-time dashboard that brings together everything marketers and advertisers need to know about
their marketing campaigns. It helps users of the solutions obtain data to gain insights and act upon their data more quickly.
Our solutions utilize data from online channels such as mobile, social and digital video; data from enterprise systems such
as Customer Relationship Management (“CRM”) applications; content that can be assembled to create personalized experiences;
and common services that allow the ability to access the data and content. These solutions and services are accessed primarily by
a web browser, and are built on a scalable and flexible computing architecture. As such, these components and services reduce
the need for our customers to make upfront investments in technology, implementation services or additional IT personnel, thereby
increasing customers' flexibility in allocating their IT capital investments.
Adobe Marketing Cloud is comprised of several components listed below, organized around key solutions which address
the broad needs of digital marketers.
Adobe Analytics
Adobe Analytics combines the power of actionable analytics and audience segmentation with the distributed value of
reporting and sharing of key business analysis and connects it for data driven marketing. It includes the following key product
components:
Adobe SiteCatalyst—hosted software that provides users the ability to capture, store and analyze information generated by
their websites and other sources and to gain real-time business insights via charts, graphs and dashboards into the performance
and efficiency of marketing and sales initiatives and other business processes; built on a scalable and flexible computing architecture.
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Adobe Discover—hosted software that provides web analysts and digital marketers with insight and concise web analytics
marketing segmentation as revealed by real-time visitor information; enables businesses to understand a comprehensive, multidimensional view of their customers through accurate and timely information such that they can make informed decisions to
improve the performance of their business.
Adobe DataWarehouse—contains information captured by SiteCatalyst, our core Analytics product offering, and other
Digital Marketing applications.
Adobe ReportBuilder—a plugin that enables marketers to perform specialized analysis and easily create customized reports
inside of Microsoft Excel; provides users with an intuitive, easy-to-use wizard that guides them through the process of importing
real-time online analytics data from our SiteCatalyst analytics product.
Adobe Genesis—contains application programming interfaces to integrate and augment analytics data with relevant data
from internet and enterprise applications and data from a growing number of online and offline channels to enable business
optimization.
Adobe Insight—on-premise software that enables organizations to quickly analyze large volumes of rapidly evolving data
in real-time; provides users with charting and visualization capabilities to assist them with making quick business decisions that
can improve overall business performance; accepts data from any source, including data warehouses and business intelligence
tools.
Adobe Social
Adobe Social helps organizations measure and manage marketing activities across owned, earned and paid media—ensuring
the impact of social is properly attributed. It includes the following key product components:
Adobe Social—enables marketers to use social data as an input to optimizing interactions with their customers and prospects
across all channels; helps users see social media data with other analytics data by integrating the two to give real-time measurement
and segmentation information on social networks; with this insight, marketers can measure the impact of social media on their
business and understand how conversations on social networks and online communities influence marketing performance.
Adobe CQ Social Communities—used by marketers to leverage social media and dedicated branded communities on their
digital properties; enables customers to build out their social presence on their websites with user-generated content alongside
premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social
calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities
and encourage customer connection to increase engagement and drive higher brand loyalty and conversions.
Adobe Media Optimizer
Adobe Media Optimizer combines portfolio and rules based ad management with intelligent campaign forecasting and
targeted ad delivery for data optimized advertising. It includes the following key product components:
Adobe AdLens—a cloud-based, unified ad management system for digital marketing efforts across search, display, and
social media channels; offers insight, control, and automation for cross-channel campaign management; users can manage and
optimize search, display and social advertising as a unified campaign; includes data integration with Adobe SiteCatalyst; enables
advertisers to utilize conversion metrics to make strategic media decisions and deliver optimal return on their advertising spending;
also provides integration with Adobe AudienceManager for targeted audience segmentation to ensure marketers can have their
advertising campaigns reach their intended targeted audiences. AdLens was formerly known as Efficient Frontier, and also combines
the features of our product formerly known as Adobe SearchCenter.
Adobe AudienceManager—hosted software that enables advertisers and publishers to maximize their online ad investment
through online audience optimization; helps marketers consolidate audience information from all available sources and assists
with identifying, quantifying, and optimizing high-value target audiences, which can then be offered to advertisers via an integrated,
secure, privacy-friendly management system that works across all advertising distribution platforms.
Adobe AudienceResearch—hosted software that provides publishers with certified metrics, enabling insight into audience
size and engagement for websites, mobile applications, and digital magazines; leveraging data from Adobe SiteCatalyst
installations, it certifies the quality of the data and delivers accurate and consistent reporting in real time through relationships
with the Media Rating Council, the leading digital auditing service, and the Interactive Advertising Bureau, which drives industry
guidelines for audience measurement.
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Adobe Target
Adobe Target helps organizations dynamically test and present highly customized experiences to a digital property in order
to drive significantly higher conversion rates. It includes the following key product components:
Adobe Recommendations—hosted software that enables businesses to promote products and content online; utilizes flexible
data and behavioral driven algorithms, allowing our customers to increase conversions on their websites by ensuring relevant
choices are automatically presented to their customers, either on websites or through email campaigns.
Adobe Search&Promote—hosted software which enables marketers to optimize how visitors browse, find, compare, and
select relevant products and content on web and mobile sites; marketers can easily promote priority items based on business
objectives and visitor intent, as well as automate merchandising and promotions activity via certain triggers or metrics; provides
flexible search and navigation interfaces, social browsing, sort and filter options, refinements based on multiple facets such as
color, gender and customer ratings, an advanced marketer console to monitor conversion metrics and paths, and a visual rule
builder to manage promotions.
Adobe Test&Target—hosted software that gives digital marketers a website optimization tool with the capabilities to make
their online content and offers more relevant to their customers, yielding the potential for greater customer conversion; provides
an intuitive interface for designing and executing tests, creating audience segments and targeting content.
Adobe Test&Target 1:1—hosted software that enables digital marketers to personalize the presentation of content and offers
that a visitor may find most relevant, increasing the likelihood of engagement and conversion; enables marketers to target individual
site visitors rather than predefined visitor segments; includes self-learning algorithms which minimize the investment required to
target individuals with personalized content and offers; content can be optimized to any key performance indicator, including
revenue, conversion, or click-through rate.
Adobe Experience Manager
Adobe Experience Manager enables marketers to create, manage, and optimize online customer experiences to build brand,
drive demand and extend reach in the digital world. It integrates Adobe's broad portfolio of industry-leading tools to empower
marketers to execute with ease, agility, and effectiveness. Experience Manager also facilitates collaboration with IT by providing
the unified tools and platform to enable them to rapidly develop and deploy new templates, designs, and components for web,
mobile and social channels to business users.
The foundation of our Experience Manager solutions is Adobe CQ, our WCM platform which enables organizations to
deliver carefully tailored customer experiences across web and mobile channels. Experience Manager also provides a rich analytics
framework by enabling powerful, embedded integrations with a collection of analytics applications for online business optimization.
This framework enables marketers to collect, test, and measure customer interactions with their brand to further refine the user
experience, reinforcing a sustained, virtuous cycle that is constantly optimizing.
Key capabilities offered by Experience Manager include:
•
Automated personalization—marketers can deliver targeted content to customers based on their persona, context, and
other data, and simulate user experiences for different personas. As marketers identify which offers and content are
relevant to their customers, they can continually evolve their experiences by executing multiple testing to improve
content relevance in any channel;
•
Cross-channel-marketers can rapidly deliver content to all screens, as Adobe CQ automatically detects a user's device
and sends the representation optimized for its device group. Content authors can simulate the experience for mobile
sites and mobile applications as it would appear on a particular device;
•
Digital Asset Management —provides the ability to organize and manage digital assets with a single repository;
•
Social communities—marketers can easily embed social properties such as wikis, blogs, calendars, and forums to glean
customer insights to drive their business forward, foster brand advocates to evangelize their products and services, and
empower their customers to share their own content, driving deeper engagement with their brand; and
•
Campaign management—Automates the management of multi-channel campaigns to help marketers handle customer
segments, lists, leads, and reports.
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Adobe Experience Manager includes the following key product components:
Adobe CQ—our WEM, DAM, and social collaboration platform that enables interactive marketers to leverage the online
channel as the most cost-effective marketing vehicle to engage customers and prospects to increase competitive advantage and
drive revenue; offered as a hosted and on-premise solution.
Adobe Scene7—hosted solution used to enhance, publish, and deliver dynamic marketing assets to web, mobile, social,
email, and print; enables businesses to leverage consumer data and tailor content delivery to provide a rich, immersive digital
experience to each consumer in real-time; content is tailored by dynamically generating and delivering variations of rich content
that is relevant for consumer engagement across channels and devices; used by many leading online retail websites to automate
the production and availability of rich media experiences, including zoom, dynamic sizing, personalization and interactive dynamic
product catalogs.
Landing Pages—enables digital marketers to quickly create, edit, and publish landing pages and microsites that build brand,
drive demand, and reach new customers with agile digital experiences.
Adobe CQ Social Communities—used by marketers to leverage social media and dedicated branded communities on their
digital properties; enables customers to build out their social presence on their websites with user-generated content alongside
premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social
calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities
and encourage customer connection to increase engagement and drive higher brand loyalty and conversions.
Digital Asset Management—provides a repository for organizing and managing digital assets; integrates with Adobe CQ
and Adobe's creative authoring tools to provide a seamless path from asset creation to storage, approval, publishing, and reuse;
designed to manage assets and dynamically deliver rich media, including video, for multi-channel distribution; uses web-based
shared workspaces for workflow-based idea sharing and offers 24/7 self-service of marketing materials and video and image
libraries; simplifies planning, production, and distribution of digital assets within organizations and with external digital agencies.
Adobe CRX—an open, standards-based Enterprise Content Management (“ECM”) platform, built on a modern architecture
that is highly scalable; natively manages all content as defined in the Content Repository for Java Technology API Version 2.0
specification; this programming interface, defined by the ECM industry, provides developers with a stable and well-defined, yet
extensible content and query model that protects past and future investments.
Media & Advertising Solutions
We provide solutions for creating, delivering and monetizing video, enabling customers such as media and entertaining
companies to expand the reach of their business using an entire workflow from Adobe. Within our Digital Media business our
content creation tools are managed and offered to help customers create professional and premium video content. As part of our
video content creation solutions, we also offer Adobe Anywhere which enables video teams to collaborate and develop video
content, using access to shared media across standard networks virtually anywhere they have internet connectivity.
As more and more premium video delivery has migrated to the web, Adobe has built out solutions in our Digital Marketing
business to assist customers with delivering, protecting and monetizing their video assets. In 2012, we announced Project Primetime,
which is a unified video platform that helps customers achieve broadcast audience reach, lower operating costs, and boost revenue
from ad sales. Our solution delivers a TV-like viewing experience across platforms, including iOS and Android, and on devices
from desktops to tablets to Smart TVs. Project Primetime provides a single, end-to-end workflow that links our streaming, DRM,
ad serving, audience management, analytics, and optimization technologies.
Our efforts with Project Primetime are based on the development and integration of the following products and solutions:
Adobe Access—a scalable, flexible content protection solution which provides an efficient workflow to help companies
deliver and protect premium video across desktops, mobile devices, and platforms, including iOS and Android; as an UltraViolet
approved DRM technology, it also extends audience reach and enables a variety of business models, including HD rental,
subscription, and electronic sell-through.
Adobe Auditude—a video ad serving platform that provides premium TV-like commercial breaks during video delivery,
supported by robust tools and services to drive the highest volume of advertising demand from direct and indirect sales; enables
seamless ad insertion across PC, iOS and Android devices, set-top boxes, game consoles, and other internet-connected video
playback devices; allows marketers to deliver relevant, targeted advertising with full control over ad quality and sequencing.
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Adobe Media Server—a family of server-based software which provides video publishing and workflow capabilities that
enable customers to deliver video to PC and non-PC platforms, including those running iOS and Android; utilizes flexible delivery
methods which can save bandwidth costs and lighten network load; offered to customers with different levels of capabilities:
•
Adobe Media Server Standard—base level version enables customers to deliver video on-demand and live through
HTTP delivery to reach broad video audiences using iOS and Adobe Flash Player compatible devices and PCs.
•
Adobe Media Server Professional—combines with Adobe Access software to enable customers to stream protected,
studio-grade content using a single DRM workflow across desktops, connected TVs, tablets, and smartphones, including
iOS and Android devices.
•
Adobe Media Server Extended—broadens video delivery broadcast capabilities by enabling customers to serve video
to more viewers on a large scale with peer-to-peer capabilities.
•
Adobe Media Server on Amazon Web Services—an easy and affordable way for customers to deploy multiprotocol
media streaming that scales to meet business needs; supports Dynamic HTTP Packaging, protected HTTP streaming,
and DRM for Apple HLS; enables a single packaging and protection workflow, and provides delivery scale through
integration with Amazon CloudFront.
Adobe Media Encoder—a free media encoder and live audio and video capture software, also available as part of Adobe
Creative Cloud and our Creative Suite video products; streams audio and video in real time to Adobe Media Server software;
enables web broadcasts of live events such as sporting events, concerts, webcasts, and news and educational events.
Adobe Pass for TV Everywhere—as part of the TV Everywhere industry initiative, Adobe Pass enables content owners to
verify a user's entitlement to content in a manner that is simple and secure; implemented as a hosted service, it allows for backend integration based on the business rules required by both programmers and pay TV providers; helps content owners and pay
TV providers take their content to the internet with a secure environment to prevent fraud, and a superior customer experience.
Adobe Video Streaming Service—via CDN partners, Adobe offers hosted services for streaming on-demand video for the
Adobe Flash Player runtime across high-performance networks; built with Adobe Media Server, Adobe Video Streaming Service
provides an effective way to deliver .flv video to large audiences without the overhead of setting up and maintaining streaming
server hardware and network.
HTTP Dynamic Streaming—enables on-demand and live streaming of standards-based MP4 video over regular HTTP
connections; gives content creators, developers, and publishers more choice in high-quality media; while the Real Time Message
Protocol remains the protocol of choice for lowest latency, fastest start, dynamic buffering, and stream encryption, HTTP Dynamic
Streaming enables leveraging of existing caching infrastructures, and provides tools for integrating content preparation into existing
encoding workflows.
Digital Marketing—Digital Enterprise Products
Adobe Connect—a rich web-based SaaS offering or on-premise perpetual license server communication system that enables
organizations to reduce the costs of travel and increase the effectiveness of online training, marketing events, sales meetings and
collaborative web conferencing solutions which are instantly accessible by customers, partners and employees using Adobe Flash
Player; consists of a core Adobe Connect Events Server or hosted service, and modules that provide specific application
functionality, including Adobe Connect Training and Adobe Connect Events; can be deployed with either some or all of these
components together; Adobe Connect Training allows organizations to build a complete online training system with Microsoft
PowerPoint presentations that include surveys, analysis, course administration and content management; Adobe Connect Events
allows users to provide seminar and training sessions as well as to conduct business presentations through the web.
Adobe LiveCycle Collaboration Service—enables architects and developers to create more engaging and more dynamic
user experiences that deliver multi-user, real-time collaboration features into new or existing rich internet applications; allows
customers to offload management and processing for features such as chat, video, VoIP and white-boarding, ultimately to provide
guided product or service selection, assisted product design or enhanced customer support.
Adobe LiveCycle Connectors for ECM—solutions that enable LiveCycle customers to connect their LiveCycle applications
with other industry-leading enterprise content management systems, such as EMC Documentum, IBM FileNet and IBM Content
Manager.
Adobe LiveCycle Content Services—offers a library of services that can be used with other LiveCycle solution components
to create content-rich engagement applications whereby end users can share and collaborate on content development in content
spaces as part of a company's business processes; supports check-in/check-out capabilities, keeps a complete audit history of all
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document actions and provides a fully integrated set of content services ranging from an enterprise content repository to social
collaboration tools such as enterprise forums; also includes team collaboration capabilities such as forums and discussions, and
provides Microsoft Office plug-ins that enable users to interact with the process engine and content repository using Microsoft
Word and Microsoft Excel.
Adobe LiveCycle Mosaic—provides rich internet application framework for rapidly assembling and engaging activitycentric enterprise applications, and provides knowledge workers with real-time, contextual information from multiple sources in
a single, personalized view; used by developers to extend existing applications by exposing their business logic and user interfaces
into application tiles that can be assembled to create unified views.
Adobe LiveCycle Data Services—high-performance, scalable and flexible framework that streamlines the development of
RIAs using Flex and Adobe AIR; abstracts the complexity required to create server push-based applications and supports a rich
set of features to create real-time solutions; utilizes powerful data services and simplifies data management problems such as
tracking changes, synchronization, paging and conflict resolution; deployed as a standard J2EE web application, which enables
customers to leverage their existing infrastructure.
Adobe LiveCycle Forms—server-based software application that organizations can use to cost-effectively and securely
extend their core business processes beyond their enterprise system; enables customers to create and deploy XML-based form
templates as PDF, SWF, or HTML for use with Adobe Reader or Adobe Flash Player software, or with web browsers; provides
for the capture of data from submitted forms and the transfer of the data directly into an organization's core business systems,
thereby streamlining form-driven business processes and improving data accuracy.
Adobe LiveCycle Reader Extensions—server-based software application that lets enterprises easily share interactive Adobe
PDF documents with external parties without requiring recipients of the documents to purchase Acrobat software that normally
would be necessary to interact with the Adobe PDF documents they receive; unlocks features on an individual Adobe PDF document
by document basis so that when such a file is opened in the free Adobe Reader, users have access to tools that normally would not
be available in Adobe Reader, such as reviewing and commenting functions, signatures to digitally sign PDF documents, embedding
file attachments, enabling database and web service capabilities, and the ability to fill in form data, submit and save electronic
documents locally.
Adobe LiveCycle Output—server-based solution that supports on-demand document processes including the generation
of documents such as correspondence, confirmations, bids, or shipping labels; provides capabilities to merge XML data from
back-end systems with LiveCycle Designer ES templates to generate documents in PDF, PDF/A, PostScript, PCL, or Zebra label
formats; customers can customize electronic document packages by combining newly generated PDF documents with existing
files from document repositories; customers can also convert PDF documents to print or image file formats and then route them
automatically to support direct server-based printing or archiving operations.
Adobe LiveCycle PDF Generator—server-based software that automates the creation, assembly, distribution and archiving
of PDF documents in combination with critical business processes; converts a wide range of native and standard file formats, and
can combine newly created PDF documents with existing files or pages to assemble customized PDF packages; supports direct
server-based PDF printing or can convert PDF documents to a wide variety of formats, including image formats and PDF/A.
Adobe LiveCycle Production Print—server-based solution that performs high-volume jobs through efficient batch processes,
generating documents such as statements, invoices, contracts, or welcome kits; merges XML, ASCII or other data types from
back-end systems with LiveCycle Designer ES templates to generate documents in a broad range of print or electronic formats to
support high volume production requirements; enables customers to print document packages by collecting multiple jobs over
time and then grouping them to minimize mailing costs.
Adobe LiveCycle Digital Signatures—server-based software application that helps organizations automate the processing
of electronic documents by providing batch-based capabilities to digitally sign and certify Adobe PDF documents, validate digital
signatures and encrypt/decrypt Adobe PDF documents; safeguards information when it leaves a company's network and integrates
with existing public key infrastructures.
Adobe LiveCycle Rights Management—server-based software application that helps organizations manage information
access securely with dynamic, persistent document control; allows for access control and auditing of Adobe PDF, Microsoft Word,
Microsoft Excel, Microsoft PowerPoint, PTC Pro/ENGINEER, Dassault CATIA and Lattice XVL CAD document usage inside
or outside the firewall, online or offline and across multiple document platforms; lets organizations know when a document has
been viewed, printed or altered and restricts access so that only intended recipients can open, use and forward a document; allows
for previously granted document permissions and access to be revoked; leverages Acrobat and Adobe Reader and other client
plug-in software to author and view protected documents.
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Adobe LiveCycle Process Management—server-based process management application that allows organizations to
orchestrate people, systems, content and business rules into streamlined, end-to-end processes that are accessible to process
participants through engaging user interfaces, online or offline; provides out-of-box dashboards to help users gain insights into
business operations in real time and management tools to fix day-to-day operational problems and make long-term process
improvements.
Adobe LiveCycle Business Activity Monitoring—software that allows administrators and process participants to quickly
identify bottlenecks, check progress and view other process information related to business transactions; comes in two versions:
Adobe LiveCycle Business Activity Monitoring (“BAM”) ES Standard, which allows for the monitoring of all LiveCycle processes
with 16 out-of-the-box dashboards and, Adobe LiveCycle BAM ES Extended, which adds the ability to extend LiveCycle BAM
ES to other enterprise business systems so that users can monitor business processes via dashboards inside and outside the LiveCycle
environment.
Adobe LiveCycle Managed Services—LiveCycle is available as on-premise software or as a managed services offering
delivered in partnership with Amazon.com. LiveCycle Managed Services customers pay Adobe an annual subscription fee. In
return, Adobe provisions and manages a LiveCycle instance for the customer on Amazon Web Services. By outsourcing the
management of their LiveCycle instance to Adobe, customers benefit from increased capital efficiency and reduced complexity.
As a result, customers can focus more of their efforts on providing successful user outcomes and less on the tasks of managing
computing infrastructure.
Adobe Central Pro Output Server—a server-based software application for document generation that allows organizations
to create personalized, customer-facing documents from any data source, including legacy, line-of-business, enterprise resource
planning or CRM applications; merges data with an electronic document template using a powerful processing engine to
dynamically generate electronic documents such as purchase orders, invoices, statements and checks for delivery via Adobe PDF,
the web, e-mail, fax or print; works with Adobe Output Designer which is a companion tool used to create sophisticated document
templates.
Adobe LiveCycle Designer—desktop software application that simplifies the creation and maintenance of intelligent XML
based forms for deployment as Adobe PDF forms, HTML applications and Flash based RIAs; provides an intuitive, graphical
design tool for creating XML templates that look exactly as the author intended and previewing them before deployment; it also
simplifies adding intelligence to documents, such as business and routing logic, and binding form fields to arbitrary XML schemes
for seamless integration with enterprise applications.
Adobe Output Designer—a design tool that allows users to create electronic document templates for use with Adobe solutions
for document generation; aids in the creation of electronic documents that exactly replicate existing paper documents.
Adobe Output Pak for mySAP.com—an SAP-certified server-based software application for document generation that
enables organizations to optimize their investment in their SAP solution by creating personalized, professional-looking, customerfacing documents; provides an easy, fast and cost-effective way to create and maintain documents for the SAP environment;
integrates directly with an SAP system to extract information which is merged with a document template that defines the layout
and formatting of the document; output can be in a variety of formats, including Adobe PDF, print, fax, e-mail and the web.
Adobe Web Output Pak—a server-based software application for document generation; creates documents in PDF and
HTML for presentation on the web and in Wireless Markup Language for presentation to a wireless device; allows users to
personalize and control the look of documents based on the data the documents contain.
Print and Publishing Products
Adobe Authorware—a legacy rich media authoring tool used to develop caption based eLearning on Windows and Macintosh
based platforms; use of the product ranges from creating web-based tutorials to simulations incorporating audio and video;
applications developed with Authorware can be delivered on the web, over corporate networks or on CD-ROM.
Adobe Captivate—enables users to rapidly create professional and engaging eLearning content-including software
simulation, quizzes, animation and multimedia-and deliver the content in .flv and other formats; the content can be created without
any programming or multi-media skills and can be published to CD/DVDs and Learning Management Systems used in training,
sales, marketing and customer support applications; often used in combination with Adobe Connect, Adobe Captivate provides a
robust technology solution to bring understanding and retention to end users of rapid training and eLearning solutions.
Adobe ColdFusion—provides a server-scripting environment and a set of features used by organizations for building
database-driven scalable applications that are accessible through web browsers, Adobe Flash Player and Adobe AIR; built on an
open Java technology architecture and can be deployed on third-party Java application servers that support the J2EE specification.
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Adobe ColdFusion Builder—development tool for building ColdFusion applications; provides a unified, customizable and
extensible development environment to code applications, manage servers and deploy projects.
Adobe Contribute—an easy-to-use tool to update and publish web content, designed for non-technical business users who
need to make minor changes to intranet and internet websites that conform to the structure, style, layout and site standards setup
by a website administrator; streamlines the web content maintenance process and provides website administrators with a set of
simple content management functionality to manage and administer websites; also provides bloggers with a simple tool to create
and update their blogs.
Adobe Director—a tool for creating professional multimedia content that combines images, text, audio and video into
presentations, interactive experiences and prototypes; for websites, it provides users with the ability to deliver multimedia content
that supports three dimensional content and animations for use in various markets, including education, games and commerce;
also enables the creation of fixed-media content for CD titles and DVD titles in the entertainment, education and corporate training
markets.
Adobe eLearning Suite—an integrated set of software for creating professional eLearning and HTML5-based courseware;
includes capabilities of Adobe Captivate, Flash Professional, Dreamweaver, Photoshop Extended, Acrobat, Adobe Presenter,
Adobe Audition and Adobe Bridge.
Adobe FrameMaker—an application for authoring and publishing long, structured, content-rich documents including books,
documentation, technical manuals and reports; provides users a way to publish their content to multiple output formats, including
print, Adobe PDF, HTML, XML and Microsoft Word.
Adobe FrameMaker Server—extends the capabilities of FrameMaker software in an automated, server-based environment;
includes features that facilitate high-volume publishing, including catalog, database, and directory publishing, as well as the
production of personalized technical documents and custom eBooks.
Adobe Font Folio—contains more than 2,400 typefaces from the Adobe Type Library in OpenType format, offering a type
solution for print, the web, digital video or electronic documents; also includes Adobe Type Manager which makes it easy to create
beautiful text for print, web and video projects.
Adobe JRun—a legacy application server solution based on the J2EE specification; integrates with our development tool
offerings and is used to deploy applications for functions such as online banking and customer service.
Adobe PageMaker—software used to create high-quality documents simply and reliably with robust page layout tools,
templates and stock art.
Adobe PDF Print Engine—a next-generation printing platform that enables complete, end-to-end PDF-based workflows
using common PDF technology to generate, preview and print PDF documents; allows PDF documents to be rendered natively
throughout a workflow, providing performance benefits which include eliminating the need to flatten transparent artwork.
Adobe PostScript—a printing and imaging page description language that delivers high quality output, cross-platform
compatibility and top performance for graphically rich printing output from corporate desktop printers to high-end publishing
printers; gives users the power to create and print visually rich documents with total precision; licensed to printing equipment and
workflow software manufacturers for integration into their printing products.
Adobe RoboHelp—an easy-to-use authoring and collaboration tool used by developers and technical writers to create
professional help systems and documentation for desktops, smartphones, tablets and web-based applications; utilizes support for
HTML5, WebHelp, Compiled Windows HTML Help (“CHM”), AIR Help, PDF, eBook, and native mobile apps.
Adobe Shockwave Player—a rich media player used for deploying multimedia content for use in internet solutions including
education, training, games and commerce.
Adobe Technical Communication Suite—an integrated set of software for technical communicators who create and delivery
technical-orientated content; includes Acrobat, Adobe Captivate, FrameMaker, Illustrator and RoboHelp technologies; helps
customers improve their workflows, especially technical communicators who want a single solution to meet their content creation
and publishing needs.
FreeHand MX—a legacy professional vector graphics tool designers and illustrators use to create images.
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COMPETITION
The markets for our products and services are characterized by intense competition, new industry standards, evolving
business and distribution models, disruptive software and hardware technology developments, frequent new product introductions,
short product life cycles, price cutting with resulting downward pressure on gross margins and price sensitivity on the part of
consumers. Our future success will depend on our ability to enhance and better integrate our existing products, introduce new
products on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications
and anticipate and respond to emerging standards, business models, software delivery methods and other technological changes.
Digital Media
In our Digital Media segment, we offer Adobe Creative Cloud and Adobe Creative Suite in multiple editions which consist
of combinations of several of our technologies. In addition to offering the technologies within these products, we also offer many
of them as individual software applications. These products compete with those from many companies, including Apple, Aviary,
Avid, Corel, Microsoft, Quark and others, as well as from many lower-end offerings available on touch-enabled devices via app
stores, and from various open source initiatives.
Of the competitors listed, no single company has offerings identical to our Creative Suite and Creative Cloud family of
products, but our products face collective competition from a variety of point offerings, free products and downloadable apps. For
instance, Aviary provides for a free set of online, cloud-based creative tools via its partners' websites and mobile applications. Its
tools run inside web browsers and mobile applications and include an image editor, a vector graphics editor, a special effects tool,
and audio and music tools.
We believe our Creative Suite and Creative Cloud family of products competes favorably on the basis of features and
functionality, ease of use, product reliability, value and performance characteristics. The individual technologies within Creative
Cloud and the Creative Suite editions also work well together, providing broader functionality and shortened product training time
for the individual who uses multiple applications to complete a project.
As discussed below, we also believe our individual Creative Suite and Creative Cloud products compete favorably against
those offered by competitors noted above.
Our InDesign product, used for professional page layout, faces competition from offerings such as Quark Xpress in the
professional page layout market. We believe InDesign competes favorably due to the innovative features of InDesign, its improved
integration with our other products, our strong brand among users, positive reviews by industry experts, and more recent innovations
which address customer challenges related to publishing for tablets which is delivered in concert with our new Digital Publishing
Suite offerings.
Professional drawing and illustration products are characterized by feature-rich competition, brand awareness and price
sensitivity. Our Adobe Illustrator product faces competition from companies such as ACDsee, Aviary, Corel, Mediascape, Xara
and the open source product called Karbon14. Competition in this market is also emerging with a new category of drawing and
illustration applications on tablet and smartphone platforms. We offer Adobe Ideas for graphics creation on tablets, and other
software companies, including Autodesk with its SketchBook Pro application, are extending their products and feature sets to
platforms such as Apple's iPad and potentially other tablet devices. We believe our products compete favorably due to high customer
awareness of their rich features, especially the drawing and illustration functionalities, the technical capabilities of the product
and our ability to leverage core technologies from our other established products.
The demand for professional web page layout and professional web content creation tools is constantly evolving and highly
volatile. We believe Dreamweaver and Flash Professional face direct and indirect competition from desktop software companies
such as Bare Bones Software, FlashDevelop, JetBrains, Panic, MacRabbit, MacroMates, and various proprietary and open source
web authoring tools. We also face competition from Microsoft Visual Studio products, and other integrated development
environments that enable developers to create web applications from companies such as BEA Systems (a subsidiary of Oracle),
Borland (owned by Micro Focus) and IBM. We believe our products compare favorably to these applications; however, our market
share may be constrained by Microsoft's ability to target its web software to users in markets it dominates. These target customers
include users of Microsoft Office, Microsoft Windows operating system, the Microsoft Internet Explorer web browser and Microsoft
Visual Studio.
Our Flash technologies, including Adobe Flash Player and Adobe AIR, face competition from alternative approaches to
building rich content and web applications such as JavaFX, HTML5, native applications and Unity.
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The HTML specification, which among other things describes the syntax and format for encoding web pages, has evolved
over several decades and Adobe has participated in its evolution. Our tools are among the leading applications used by web
designers and developers to create HTML-based content that is displayed and viewed in web browsers.
The newest version of HTML, commonly known as HTML5, is being developed by an industry consortium that includes
Adobe and leading browser vendors such as Apple, Google and Microsoft, and contains new features which compete with some
of the features of Flash. These features include the ability to create and display rich advertising and play video natively within the
browser. We are working to implement support for HTML5 in our creative product solutions, and we believe we will provide the
widest array of support and tooling for HTML5 content creation over time. We are also contributing Adobe technology to WebKit,
the open source project utilized by popular internet browsers such as Apple's Safari and Google's Chrome browser, to improve
the user experience for HTML5-based content in areas such as publishing and animated graphics. By increasing the capabilities
for displaying rich content in browsers with HTML5, we believe we can increase the desire by web content creators for our tools
that create such content.
As it relates to Flash, we believe that Flash technology-based content and tooling have a significant technology lead over
other solutions trying to replicate its feature sets on PC-based systems, particularly in use cases such as online gaming, web
applications, 3D-based content, and premium online video delivery. Given Apple's considerable market share with smartphones
and tablets, and Apple's decision to not support Adobe Flash Player on its mobile devices, in 2011 we decided (based on this and
other factors) to discontinue new development on Adobe Flash Player for mobile browser implementations in favor of supporting
Adobe AIR for the packaging of standalone mobile applications developed using Flash technologies.
As it relates to HTML5, we believe demand for authoring using new HTML5 features will intensify the competition in the
professional web page layout market. We also believe the potential fragmentation of HTML5 implementations by the various
browser vendors that compete with each other will create the need for tool improvements to address the disparities between
platforms and devices that could result. Our Dreamweaver product, new Adobe Edge Tools & Services and Adobe Muse are well
positioned to assist customers with migrating to new versions of standards such as HTML5, as well as delivering the means to
create rich, interactive experiences on devices and screens of all sizes. We expect new tools and solutions to come to market that
will compete with our tools. However, we believe our continuing innovation in our tools, and how these tools are integrated with
other Adobe technologies that are used by web content creators, creates a value proposition that is greater than those trying to
compete with our web page content creation offerings.
As customers such as publishers and media companies increase their desire to deliver their assets to new platforms such as
mobile devices and tablets, we expect new and existing companies to continue to offer solutions that address these challenges that
are competitive with our Digital Publishing Suite. Many design agencies are building capabilities to offer such solutions, and
companies such as Amazon, Apple, Aquafada, Google, Texterity and Zinio offer an alternative format and business model for the
delivery of newspaper and magazine content to mobile devices.
With our Adobe Media Server solution, we face competition from Microsoft with its Windows Media Server for Windows
Media and Silverlight, as well as Apple, Move Networks, Real Networks, Wowza Media Systems and others.
Our tools used to create applications for PCs and mobile devices such as smartphones and tablets are influenced by evolving
industry standards, rapid software and hardware technology developments and frequent new product and technology introductions
by companies or open-source initiatives targeting similar opportunities. Technologies and products that compete with our tools
for creating mobile applications include solutions that utilize Java and Scalable Vector Graphics. On Apple devices running the
iOS operating system, on devices running Microsoft operating systems and on devices running the Google Android operating
system, developers can choose to use native development environments for those platforms. They can also utilize other developer
solutions that can be compiled to run on such devices, including those from companies such as Appcelerator, Unity Technologies,
Sencha and Strobe.
We believe our robust programming model and developer tools used to create rich content, our large developer community
and ecosystem that utilize our tools and the growth of companies who utilize our Flash, AIR, PhoneGap and PhoneGap Build
solutions as a basis for rich content and application delivery across multiple screens are key assets in our ability to effectively
compete in this market. Further, the rich expressiveness of Flash, which provides the capability to deliver audio, video, motion
graphics, vector graphics and visual effects resulting in rich user experiences and interfaces in browsers on PC platforms and as
applications across PC and mobile device platforms such as iOS and Android, is a key differentiation when compared to the
capabilities of alternate solutions, especially for gaming and premium video delivery use cases.
The needs of digital imaging and video editing software users are constantly evolving due to rapid technology and hardware
advancements in digital cameras, digital video cameras, printers, PCs, tablets, mobile phones and other new devices. Our imaging
and video software offerings, including Photoshop, Photoshop Lightroom, Photoshop Elements, After Effects, Adobe Audition,
Encore, Adobe Premiere Elements and Adobe Premiere Pro, face competition from companies offering similar products. We also
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continue to face competition from new and free products, including web services and mobile/tablet applications that compete
directly with our Adobe Revel offering.
In professional digital imaging, software applications and services compete based on product features, brand awareness
and price sensitivity. In addition to competition with Apple's Aperture product, our Photoshop and Photoshop Lightroom products
face direct and indirect competition from a number of companies, including Corel. New image editing applications for mobile
devices and tablets with features that compete with our professional products are also emerging as adoption of these devices grows.
Our Adobe Photoshop products compete favorably due to high customer awareness of the Photoshop brand in digital imaging,
the positive recommendations for our Photoshop product by market influencers, the features and technical capabilities of the
product and our ability to leverage core features from our other established products.
Our other digital imaging and video editing offerings, including Adobe Photoshop Elements and Adobe Premiere Elements,
are subject to intense competition, including customer price sensitivity, competitor brand awareness and competitor strength in
OEM bundling and retail distribution. We face direct and indirect competition in the consumer digital imaging market from a
number of companies that market software that competes with ours, including ACD Systems, AI Soft (Japan), Apple, ArcSoft,
Corel, i4 (Japan), Google, Kodak, Nova Development, Magix, Microsoft, Photodex Corporation, Sonic (owned by Rovi), Pinnacle
(owned by Avid) and Sony.
In addition, we face competition from device, hardware and camera manufacturers such as Apple, Canon, Dell, HewlettPackard, Nikon, Phase One, Sony and others as they try to differentiate their offerings by bundling, for free, their own digital
imaging software, or those of our competitors. Similarly, we face potential competition from operating system manufacturers such
as Apple with their iPhoto product and Microsoft as they integrate or offer hobbyist-level digital imaging and image management
features with their operating systems. We also face potential competition from smartphone and tablet manufacturers that integrate
imaging and video software into their devices to work with cameras that come as part of their smartphone and tablet offerings. In
addition, new social networking platforms such as Facebook (including its Instagram offering) and portal sites such as Google
and Yahoo! are becoming a direct means to post, edit and share images, bypassing the step of using image editing and sharing
software.
Competition is also emerging with a new category of imaging and video applications on tablet and smartphone platforms.
Existing as well as new competitors are extending their products and feature sets to platforms such as Apple's iPad and potentially
other tablet devices. Similarly, new cloud-based SaaS offerings continue to emerge which offer image editing and video-editing
capabilities, as well as social and sharing features. In addition to competing with our own mobile applications such as Photoshop
Express, our Lightroom product and our Photoshop Elements and Adobe Premiere hobbyist products, these products could start
to encroach upon the feature sets of our professional tools.
Applications for digital video editing, motion graphics, special effects, audio creation and DVD authoring face increasing
competition as video professionals and hobbyists migrate towards the use of digital camcorders and digital video production on
their computers, and DVD systems and online video for rich media playback. Our After Effects, Adobe Audition, Encore and
Adobe Premiere Pro software products, as well as the Adobe Creative Suite Production Premium edition which contains these
products, face competition from companies such as Apple, Avid, Canopus (owned by Grass Valley), Sonic (owned by Rovi) and
Sony.
Our Adobe Premiere Elements software product, which is targeted for use by hobbyists, faces competition from companies
such as Apple, ArcSoft, Autodesk, Avid, Broderbund, Corel, Magix, Microsoft and Sony as well as video editing capabilities found
in operating systems, hosted SaaS solutions, video editing solutions bundled by video camcorder manufacturers with their hardware
offerings, and video editing solutions bundled onto smartphones. Similarly, we face potential competition from operating system
manufacturers such as Apple with its iMovie and iDVD products and Microsoft with its Windows Movie Maker product as they
integrate or offer hobbyist-level digital imaging and image management features with their operating systems.
We believe we compete favorably against other digital imaging, digital video and consumer-focused image management
software applications with our Adobe Photoshop Elements and Adobe Premiere Elements products due to strong consumer
awareness of our brand in digital imaging and digital video, our relationships with significant OEMs, positive recommendations
for our products by market influencers, our focus on the retail software channel and strong feature sets.
After Effects is a leader in professional compositing and visual effects due to its strong feature set and its integration with
our other products that helps create a broad video editing platform for our customers. In professional digital video editing, we are
an industry leader with Adobe Premiere Pro and compete favorably due to our strong feature set, our OEM relationships and the
integration with our other products to create a broad digital video publishing platform for our customers.
With our Acrobat business, we continue to face competition from Microsoft. Their widely used Office product offers a
feature to save Microsoft Office documents as PDF documents, which competes with Acrobat. They also offer a proprietary digital
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rights management technology and a document format, called XML Paper Specification (“XPS”), which competes with Adobe
PDF. Given Microsoft's market dominance, the PDF feature in Office, XPS, and any other competitive Microsoft product or
technology that is bundled as part of its Office product or operating system or made freely available, could harm our overall
Acrobat market opportunity.
Our Acrobat product family also faces competition in the PDF file creation market from many clone products marketed by
companies such as AdLib, Active PDF, Apple, Global Graphics, Nuance, Software995, Sourcenext and others. In addition, other
PDF creation solutions can be found at a low cost, or for free, on the web.
For customers that use Acrobat as part of document collaboration and document process management solutions, where
electronic document delivery, exchange, collaboration, security and archival needs exist, our Acrobat product family faces
competition from entrenched office applications such as Microsoft Office and its integration with its SharePoint product. In the
higher end of the electronic document market, Acrobat Pro and Acrobat Pro Extended provide features which compete with other
creative professional PDF tool providers, such as Enfocus, Dalim and Zinio. Google's Google Apps set of products also provides
document creation and collaboration capabilities, including the ability to preview PDF documents, which can be used as an
alternative to our collaboration features in Acrobat.
To address these competitive threats, we are working to ensure our Adobe Acrobat applications stay at the forefront of
innovation in emerging opportunities such as PDF document generation, document collaboration and document security.
Digital Marketing
The markets in which our Digital Marketing business unit competes are growing rapidly and characterized by intense
competition. Our Adobe Marketing Cloud solutions face competition from large companies such as Google, Yahoo!, Microsoft,
Oracle, IBM, HP, salesforce.com and others, in addition to point product solutions and focused competitors. Additionally, new
competitors are constantly entering these markets, increasing competition. Certain of these competitors provide software on demand
to customers, generally through a web browser, or provide software that is installed by customers directly on their servers. In
addition, we compete at times with our customers' or potential customers' internally developed applications. Of the competitors
listed, no single company has products identical to our Digital Marketing offerings. Our Digital Marketing solutions compete in
a variety of areas, including: reporting and analytics; multi-channel marketing and optimization; online and social marketing; web
experience management and others.
In the market of Digital Marketing, we believe our creative tools heritage differentiates us from our competitors; we have
worked closely with marketing and creative customers for thirty years. We also believe we have market leadership in the digital
marketing market, with current customers representing leading brands in the world including markets such as financial services,
global media, retail and auto manufacturing. Our comprehensive solution to serve the needs of customers in this market extends
further than any other company addressing the opportunity; we integrate content and data, analytics, personalization, web experience
management, campaign management and social capabilities in our Adobe Marketing Cloud, surpassing the features of any
competitor. Most importantly, we provide a vision for our digital marketing customers as we engage with them across the important
aspects of their business, extending from their use of our Creative Cloud, to how they manage, deliver, measure and monetize
their content with our Adobe Marketing Cloud.
Our current principal competitors for our reporting and analytics offerings include companies that offer web analytics and
optimization services on-demand such as ComScore (which recently acquired AdXpose and Certifica), Google, IBM (which owns
Coremetrics, Unica and Tealeaf), Microsoft, WebTrends, Xiti and Yahoo!. We also compete with software and business intelligence
vendors, such as Infor (which owns Epiphany), Nielsen/NetRatings (which is a part of the Nielsen Online Unit of the Nielsen
Company) and SAS Institute. In addition, we also compete with online marketing service providers, such as DoubleClick (owned
by Google), Microsoft Advertising (formerly aQuantive when acquired by Microsoft) and 24/7 Real Media (acquired by WPP).
Our Insight products compete with channel analytics providers, such as AsterData (owned by Teradata), Clickfox, Netezza (owned
by IBM), QlikTech and Truviso.
In addition to competing with large search, display and social companies, our AdLens products and multi-channel campaign
management offerings, including those obtained through our acquisition of Efficient Frontier, compete with point solutions
providers such as Bluekai, Criteo, DecideDNA (owned by WPP), DoubleClick Search (owned by Google), IgnitionOne, Kenshoo
and Marin Software.
Our Target solutions compete with multivariate testing providers, such as Kefta (owned by Acxiom Digital), Memetrics
(owned by Accenture), Monetate, Optimizely, Optimost (owned by HP) and [x + 1]. Our Target products and solutions compete
with intra-site search vendors and merchandising solutions providers such as Autonomy (owned by HP), Celebros, Endeca
Technologies (owned by Oracle), FAST Search and Transfer ASA (owned by Microsoft), Fredhopper, Google, Nextopia Software
and SLI Systems.
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Our Adobe Social offerings compete primarily with social monitoring platforms such as Radian6 (owned by salesforce.com)
and Visible Technologies, as well as with social marketing companies such as Buddy Media (owned by Salesforce.com), Lithium
Technologies, Vitrue (owned by Oracle) and Wildfire (owned by Google).
Our Experience Manager solution competes with: general enterprise content platforms, including products from
Documentum (owned by EMC), HP (which acquired Autonomy), IBM, OpenText, and Oracle (which acquired FatWire); content
management tools like Microsoft SharePoint; large-scale WEM systems from companies such as Vignette (owned by OpenText);
and more specialized solutions, including products from Alfresco, CoreMedia, Percussion, and SDL. In addition, there are lowcost and open source alternatives, such as Drupal, Joomla!, and WordPress.
Many of the companies with which we compete offer a variety of products or services and as a result could also bundle
their products or services, which may result in these companies effectively selling their products or services at or below market
prices. In addition, large software, internet and database management companies have expanded and enhanced their offerings in
the digital marketing area, either by developing competing services or by acquiring existing competitors or strategic partners of
ours. For example, Apple provides its iAd service, Google offers both a free and premium web analytics service and acquired
DoubleClick, one of our strategic partners, in 2007. Also, Microsoft offers a web analytics service, and offers Microsoft Advertising,
which is based on Microsoft's 2007 acquisition of aQuantive; Yahoo! also offers a web analytics service based on its acquisition
of IndexTools; Salesforce.com acquired Buddy Media and Radian6 to provide services to monitor and analyze social media
conversations; Oracle acquired Endeca Technologies, FatWire, Involver and Vitrue and has entered into a definitive agreement to
acquire Eloqua, and HP acquired Autonomy (which had previously acquired Interwoven) to increase their presences in the digital
marketing space; and IBM, with its Coremetrics and Unica acquisitions, has extended its e-retailing offering in an initiative it calls
Project Northstar. These competitors, given their significant resources and preexisting relationships with our current and potential
customers, could compete effectively against us.
We believe competitive factors in our markets include the proven performance, security, scalability, flexibility and reliability
of services; the strategic relationships and integration with third-party applications; the intuitiveness and visual appeal of services'
user interfaces; the low total cost of ownership and demonstrable cost-effective benefits to customers; the ability of services to
provide N-dimensional segmentation of information; pricing; the flexibility and adaptability of services to match changing business
demands; enterprise-level customer service and training; perceived market leadership; the usability of services, including services
being easy to learn and remember, efficient and visually compelling; the real-time availability of data and reporting; independence
from portals and search engines; the ability to deploy the services globally and to provide multi-currency, multi-language and
multi-character support and to have a local presence in international markets; and success in educating customers in how to utilize
services effectively. We believe that we compete favorably with both the enterprise and low-cost alternatives, based on many of
these competitive factors including our strong feature set, the breadth of our offerings, our focus on global, multi-brand, multilanguage websites, our superior user experience, tools for building multi-screen, multi-channel applications, standards-based
architecture, scalability and performance and leadership in industry standards efforts.
Our web conferencing solution, Adobe Connect, faces competition from many web conferencing vendors, including Cisco
WebEx, Microsoft Office Live Meeting (now a part of their Microsoft Lync offering), IBM Lotus Sametime and Citrix GoToMeeting
(and their recent acquisition of NetViewer). Cisco WebEx is a market share leader, and Microsoft has steadily increased its marketing
of its solution as well as acquired Skype which is a service that enables video calls via the internet. Microsoft has brought to market
products and technologies to address many of the market needs we focus on with our LiveCycle family of products. Microsoft
offers its eForms solution called InfoPath in certain versions of Microsoft Office and has added Office Forms Services which
extends their forms to users as MS Outlook e-mail messages or to web browsers rather than the InfoPath client. They also continue
to offer their Windows Rights Management Services in their Windows Server product which is designed to allow corporate networks
to manage and enforce restrictions built into documents.
Certain Windows operating systems contain a proprietary digital rights management technology which competes with our
LiveCycle Rights Management. In addition, Microsoft's Office product includes SharePoint which competes with certain aspects
of our LiveCycle products. Microsoft has also delivered technology called Windows Presentation Foundation and Silverlight
which offers an alternative to building RIA applications within the Microsoft .NET framework.
In the electronic forms solution market, in addition to competition from Microsoft Infopath based solutions, we face
competition from IBM through their eForms solution recently rebranded as Lotus Workplace Forms. Similarly, we face competition
for document process management solutions from workflow solution vendors such as PegaSystems, Lombardi (owned by IBM),
Nuance and Ultimus.
Print and Publishing
Our Print and Publishing product line targets many markets. In technical authoring and publishing, our Adobe FrameMaker
product faces competition from large-scale electronic publishing systems, XML-based publishing companies such as PTC, as well
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as lower-end desktop publishing products such as Microsoft Word. Competition is based on the quality and features of products,
the level of customization and integration with other publishing system components, the number of hardware platforms supported,
service and price. We believe we can successfully compete based upon the quality and features of the FrameMaker product and
our extensive application programming interface.
In desktop publishing, our Adobe PageMaker product faces competition from other software products, including Microsoft
Publisher. Competition is based on the quality and features of products, ease-of-use, printer service support and price. We believe
we have a strong product and can successfully compete with these types of applications based upon the quality and features of
the PageMaker product, its strong brand among users and its widespread adoption among printer service bureaus.
In printing technologies, we believe the principal competitive factors for OEMs in selecting a page description language
or a printing technology are product capabilities, market leadership, reliability, price, support and engineering development
assistance. We believe that our competitive advantages include our technology competency, OEM customer relationships and our
intellectual property portfolio. Adobe PostScript faces competition from Hewlett-Packard's proprietary PCL page description
language and from developers of other page description languages based on the PostScript language standard, including Global
Graphics and Zoran. In addition, Microsoft's XPS document format and Autodesk's DWG format compete with Adobe PDF and
our PostScript technologies and solutions.
In the eLearning authoring market, our Adobe eLearning Suite and our Adobe Captivate product face competition from
general content development tools such as Microsoft PowerPoint, screen recording tools such as Techsmith's Camtasia and more
advanced eLearning and software simulation solutions such as Firefly, Lectora and Articulate. Competition in this market is based
on speed of development and completeness of the features of products, ease-of-use and price. We believe our product can
successfully compete based upon the strength of its broad range of features, its strong brand among users and its widespread
adoption among training developers.
Our Adobe Contribute product faces competition from solutions that provide for the simple creation of blogs and “Wikis,”
as well as basic content publishing products such as Microsoft Word, Microsoft FrontPage, Microsoft Notepad, basic HTML
editors like ezHTMLArea and ekTron, and content management solutions similar to those with which our Day Web Experience
Management solution competes. Competition in this market is based on usability, quality and features of products, the level of
customization and integration with other WEM components, the integration with web design tools, the number of hardware
platforms supported, service and price. We believe we can successfully compete based upon the usability and price of Contribute,
its strong brand among users and integration with other WEM components.
In multimedia content authoring, our Adobe Director product faces competition from a variety of multimedia content
authoring tools. Competition is based on the quality and features of products, ease-of-use and price. We believe we have a strong
product and can successfully compete based upon the quality and features of the Director product, its strong brand among users,
its widespread adoption among content developers and publishers and the widespread proliferation of the Adobe Shockwave
Player.
In technical web authoring and publishing, our Adobe RoboHelp product faces competition from large-scale web publishing
systems, XML-based web publishing companies, as well as lower-end publishing products such as Microsoft Word. Competition
is based on the quality and features of products, the level of customization and integration with other publishing system components,
service and price. We believe we can successfully compete based upon the quality and features of the RoboHelp product.
Our Adobe ColdFusion products face competition from major vendors including Microsoft, IBM and Oracle (via its BEA
subsidiary and acquisition of Sun). Our ColdFusion products also compete with several technologies available today at no cost
including the PHP and PERL programming environments that are available for the Apache web server.
OPERATIONS
Marketing and Sales
We market and distribute our products through sales channels, which include distributors, retailers, software developers,
systems integrators, ISVs and VARs, as well as through OEM and hardware bundle customers. We also market and license our
products directly using our sales force and through our own website at www.adobe.com.
We support our end users through local field offices and our worldwide distribution network, which includes locations in
Australia, Austria, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Dubai, Finland, France, Germany, India, Ireland,
Italy, Japan, Korea, Mexico, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Singapore, South Africa,
Spain, Sweden, Switzerland, Taiwan, Turkey, Ukraine, the United Arab Emirates, the United Kingdom and the United States.
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We also license software with maintenance and support, which includes rights to upgrades, when and if available, support,
updates and enhancements.
The table below lists our significant customer, as a percentage of net revenue for fiscal 2012, 2011 and 2010. Our significant
customer is a distributor who sells products across our various segments.
2012
Ingram Micro
2011
11%
2010
14%
15%
We have multiple non-exclusive, independently negotiated distribution agreements with Ingram Micro and its subsidiaries
covering our arrangements in specified countries and regions. Each of these contracts has an independent duration, is independent
of any other agreement (such as a master distribution agreement) and any termination of one agreement does not affect the status
of any of the other agreements.
In fiscal 2012, no single customer was responsible for over 10% of our gross trade receivables. In fiscal 2011, Ingram Micro,
Inc. represented 14% of our gross trade receivables.
Order Fulfillment for Physical Distribution
The procurement of the various components of packaged products, including DVDs and printed materials, and the assembly
of packages for retail and other applications products is controlled by our supply chain operations organization. We outsource our
production, inventory and fulfillment activities to third parties in the United States, EMEA and APAC.
To date, we have not experienced significant difficulties in obtaining raw materials for the manufacture of our products or
in the replication of DVDs, printing and assembly of components.
Shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending
credit review and those not shipped due to the application of our global inventory policy. We had minimal shippable backlog as
of January 18, 2013 and January 20, 2012.
Services and Support
We provide professional services, technical support and customer service across all our customer segments, including
enterprises, small/medium businesses, creative professionals, and consumers. Our service and support revenue consists primarily
of consulting fees, software maintenance and support fees and training fees.
Services
We have a global professional services team dedicated to designing, developing and implementing solutions for enterprise
customers in key vertical markets and to transfer technical expertise to our solution partners. The professional services team uses
a comprehensive, customer-focused methodology to develop high quality solutions, which in turn deliver a competitive advantage
to our enterprise customers. This methodology has been developed by capturing best practices from numerous client engagements
across a diverse mix of solutions, industries, and customer preferences. Based on this methodology, our teams are able to accelerate
the time to value and maximize the return our clients earn on their investment in Adobe solutions.
In addition, Adobe has also created a large and vibrant partner ecosystem that includes a mix of Global System Integrators
(“SIs”), Regional SIs, VARs, and Solution Partners. Adobe invests significant resources in enabling this ecosystem with the right
skills and knowledge about our technologies and best practices. Consequently, this ecosystem provides our clients several different
choices of partners, and a large accessible pool of skilled resources that can help deploy Adobe solutions. This approach not only
creates value for our customers and partners, but also creates a large and productive go-to-market channel for our sales teams.
Support
A significant portion of our support revenue is composed of our extended enterprise maintenance and support offerings.
These offerings entitle customers to:
•
the right to receive product upgrades and enhancements during the term of the maintenance and support period, which
is typically one year;
•
the right to receive technical support on the technology they have purchased from Adobe; and
•
the right to receive basic “how to” help in using our products.
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We offer a range of support programs, from fee-based incidents to annual support contracts. Additionally, we provide
extensive self-help and online technical support capabilities via the web which allows customers quick and easy access to possible
solutions. As a registered owner of the current version of an Adobe desktop product, customers are eligible to receive Getting
Started support on certain matters. Support for some products and in some countries may vary.
We provide product support through a combination of outsourced vendors and internal support centers, and through multiple
channels including phone, chat web, and email. These support services are delivered by a global support organization that includes
several Regional and Global Support Centers. These teams are responsible for providing timely, high quality technical expertise
on all our products.
We also offer Developer Support to partners and developer organizations. The Adobe Partner Connection Program focuses
on providing developers with high-quality tools, software development kits, information and services.
Training
We offer a comprehensive portfolio of training options to enable our customer and partner teams in the use of our products.
Our training portfolio includes free on-line informational services on our website (www.adobe.com) and a growing series of howto books published by Adobe Press pursuant to a joint publishing agreement with Peachpit Press. We sponsor workshops, work
with professional associations and user groups, and conduct regular beta testing programs. We also provide fee-based education
services to enhance our customers’ use of our solutions, including a wide range of traditional and online training and certifications
delivered by our team of training professionals. Adobe's portfolio of technical training courses covers our Digital Media, Digital
Marketing and other mature products and solutions.
Investments
We make direct investments in privately held companies. We enter into these investments with the intent of securing financial
returns as well as for strategic purposes as they often increase our knowledge of emerging markets and technologies, as well as
expand our opportunities to provide Adobe products and services. We also owned a limited partnership interest in Adobe Ventures
IV L.P. (“Adobe Ventures”) that invested in early stage companies with innovative technologies. During fiscal 2010, Adobe
Ventures was dissolved and all remaining assets were distributed to the partners. Adobe Ventures was managed by Granite Ventures,
an independent venture capital firm and sole general partner of Adobe Ventures.
PRODUCT DEVELOPMENT
As the software industry is characterized by rapid technological change, a continuous high level of investment is required
for the enhancement of existing products and services and the development of new products and services. We develop our software
internally as well as acquire products or technology developed by others by purchasing the stock or assets of the business entity
that owned the technology. In other instances, we have licensed or purchased the intellectual property ownership rights of programs
developed by others with license or technology transfer agreements that may obligate us to pay a flat license fee or royalties,
typically based on a dollar amount per unit shipped or a percentage of the revenue generated by those programs.
During fiscal years 2012, 2011 and 2010, our research and development expenses were $742.8 million, $738.1 million and
$680.3 million, respectively.
PRODUCT PROTECTION
We regard our software as proprietary and protect it under the laws of copyrights, patents, trademarks and trade secrets.
We have a number of domestic and foreign patents and pending applications that relate to various aspects of our products and
technology. While we believe our patents have value, no single patent is material to us or to any of our reporting segments. We
protect the source code of our software programs as trade secrets and make source code available to third parties only under limited
circumstances and subject to specific security and confidentiality constraints. From time to time, we secure rights to third party
intellectual property as we decide is beneficial to our business.
Our products are generally licensed to end users under one of the following two methods:
(1) We offer many products on a “right to use” basis pursuant to a license that restricts the use of the products to a designated
number of devices. We also rely on copyright laws and on “shrink wrap” and electronic licenses that are not physically
signed by the end user. Copyright protection may be unavailable under the laws of certain countries and the enforceability
of “shrink wrap” and electronic licenses has not been conclusively determined in all jurisdictions.
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(2) We also offer products under a SaaS or on-demand model, where hosted software is provided on demand to customers,
generally through a web browser. The use of these products is generally governed by terms of use associated with these
products.
Policing unauthorized use of computer software is difficult and software piracy is a persistent problem for the software
industry. This problem is particularly acute in international markets. We conduct anti-piracy programs directly and through certain
external software associations. In addition, we have activation technology in certain products to guard against illegal use and will
continue to do so in certain future products.
EMPLOYEES
As of November 30, 2012, we employed 11,144 people. We have not experienced work stoppages and believe our employee
relations are good.
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available
free of charge on our Investor Relations website at www.adobe.com/adbe as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. The information posted on our website is not incorporated into this report.
EXECUTIVE OFFICERS
Adobe’s executive officers as of January 18, 2013 are as follows:
Name
Shantanu Narayen
Age
49
Positions
President and Chief Executive Officer
Mr. Narayen currently serves as Adobe’s President and Chief Executive Officer. Mr. Narayen
joined Adobe in January 1998 as Vice President and General Manager of Adobe’s engineering
technology group. In January 1999, he was promoted to Senior Vice President, Worldwide
Products and in March 2001 he was promoted to Executive Vice President, Worldwide Product
Marketing and Development. In January 2005, Mr. Narayen was promoted to President and Chief
Operating Officer and in December 2007, he was appointed Chief Executive Officer of Adobe
and joined the Adobe Board of Directors. Prior to joining Adobe, Mr. Narayen co-founded Pictra
Inc., a digital photo sharing software company, in 1996. He was Director of Desktop and
Collaboration products at Silicon Graphics Inc. before founding Pictra. Mr. Narayen is also a
director of Dell Inc.
Mark Garrett
55
Executive Vice President, Chief Financial Officer
Mr. Garrett joined Adobe in February 2007 as Executive Vice President and Chief Financial
Officer. Mr. Garrett served as Senior Vice President and Chief Financial Officer of the Software
Group of EMC Corporation, a products, services and solutions provider for information
management and storage, from June 2004 to January 2007, his most recent position since EMC’s
acquisition of Documentum, Inc., an enterprise content management company, in December 2003.
Mr. Garrett first joined Documentum as Executive Vice President and Chief Financial Officer in
1997, holding that position through October 1999 and then re-joining Documentum as Executive
Vice President and Chief Financial Officer in 2002. Mr. Garrett is also a director of Informatica
Corporation.
Michael Dillon
54
Senior Vice President, General Counsel
Mr. Dillon joined Adobe in August 2012 as Senior Vice President, General Counsel and Corporate
Secretary. Prior to joining Adobe, Mr. Dillon served as General Counsel and Corporate Secretary
of Silver Spring Networks, a networking solutions provider, from November 2010 to August
2012. Before joining Silver Spring Networks, Mr. Dillon served in various capacities at Sun
Microsystems, a diversified computer networking company, prior to its acquisition by Oracle
Corporation. While at Sun Microsystems, from April 2006 to January 2010, Mr. Dillon served
as Executive Vice President, General Counsel and Secretary, from April 2004 to April 2006, as
Senior Vice President, General Counsel and Corporate Secretary, and from July 2002 to March
2004 as Vice President, Products Law Group. From October 1999 until June 2002, Mr. Dillon
served as Vice President, General Counsel and Corporate Secretary of ONI Systems Corp, an
optical networking company.
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Name
Kevin Lynch
Age
46
Positions
Senior Vice President, Chief Technology Officer
Mr. Lynch currently serves as Adobe’s Chief Technology Officer and Senior Vice President of
the Experience & Technology Organization. Mr. Lynch joined Adobe as Chief Software Architect
and Senior Vice President for Adobe’s Platform business unit through our acquisition of
Macromedia, Inc. in December 2005. At Macromedia, Mr. Lynch served as Chief Software
Architect and President of Product Development. Prior to Macromedia, Mr. Lynch participated
in a variety of technical and management roles in startups including Frame Technology and
General Magic.
Bradley Rencher
39
Senior Vice President and General Manager, Digital Marketing
Mr. Rencher serves as Senior Vice President and General Manager of Adobe’s Digital Marketing
business unit. Mr. Rencher joined Omniture, Inc. in January 2008 as Vice President of Corporate
Development and was promoted to Senior Vice President of Business Operations prior to Adobe's
acquisition of Omniture in 2009. Following the acquisition he joined Adobe as Vice President of
Business Operations. Mr. Rencher was promoted to Vice President and General Manager,
Omniture business unit in 2010 and subsequently to Senior Vice President in 2011. Prior to joining
Omniture, Mr. Rencher was a member of the technology investment banking team at Morgan
Stanley from 2005 to 2008 and a member of the investment banking team at RBC Capital Markets
from 1998 to 2004.
Matthew Thompson
54
Senior Vice President, Worldwide Field Operations
Mr. Thompson joined Adobe in January 2006 as Senior Vice President, Worldwide Field
Operations. Prior to joining Adobe, Mr. Thompson served as Senior Vice President of Worldwide
Sales at Borland Software Corporation, a software delivery optimization solutions provider, from
October 2003 to December 2006. Prior to joining Borland, Mr. Thompson was Vice President of
Worldwide Sales and Field Operations for Marimba, Inc., a provider of products and services for
software change and configuration management, from February 2001 to January 2003. From July
2000 to January 2001, Mr. Thompson was Vice President of Worldwide Sales for Calico
Commerce, Inc., a provider of eBusiness applications. Prior to joining Calico, Mr. Thompson
spent six years at Cadence Design Systems, Inc., a provider of electronic design technologies.
While at Cadence, from January 1998 to June 2000, Mr. Thompson served as Senior Vice
President, Worldwide Sales and Field Operations and from April 1994 to January 1998 as Vice
President, Worldwide Professional Services.
David Wadhwani
41
Senior Vice President and General Manager, Digital Media
Mr. Wadhwani serves as Senior Vice President and General Manager of Adobe's Digital Media
business unit. Prior to June 2010, Mr. Wadhwani was Vice President and General Manager of
Adobe’s Platform business unit. He joined Adobe in 2005 through the acquisition of Macromedia.
Prior to his time at Macromedia, Mr. Wadhwani founded and was VP of Engineering at iHarvest,
a content management company that was acquired by Interwoven and worked at Oracle in their
database tools division.
Richard T. Rowley
56
Vice President, Corporate Controller and Principal Accounting Officer
Mr. Rowley joined Adobe in November 2006 as Vice President, Corporate Controller and Principal
Accounting Officer. Prior to joining Adobe, Mr. Rowley served as Vice President, Corporate
Controller, Treasurer and Principal Accounting Officer at Synopsys, Inc., a semiconductor design
software company, from December 2002 to September 2005 and from 1999 to December 2002,
Mr. Rowley served as Vice President, Corporate Controller and Principal Accounting Officer.
From 1994 to 1999, Mr. Rowley served in several finance-related positions at Synopsys. Mr.
Rowley is a certified public accountant.
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ITEM 1A. RISK FACTORS
As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might
cause or contribute to such differences include, but are not limited to, those discussed below. These and many other factors described
in this report could adversely affect our operations, performance and financial condition.
If we cannot continue to develop, market and offer new products and services or upgrades or enhancements to existing products
and services that meet customer requirements, our operating results could suffer.
The process of developing new high technology products and services and enhancing existing products and services is
complex, costly and uncertain; if we fail to anticipate customers’ changing needs and emerging technological trends, our market
share and results of operations could suffer. We must make long-term investments, develop or obtain appropriate intellectual
property and commit significant resources before knowing whether our predictions will accurately reflect customer demand for
our products and services. Our inability to extend our core technologies into new applications and new platforms, including the
market for mobile, tablet and other IP-connected devices (“non-PC devices”), and to anticipate or respond to technological changes
could affect continued market acceptance of our products and services and our ability to develop new products and services.
Additionally, any delay in the development, production, marketing or offering of a new product or service or upgrade or enhancement
to an existing product or service could cause a decline in our revenues, earnings or stock price and could weaken our competitive
position. We maintain strategic relationships with third parties with respect to the distribution of certain of our technologies and
the support of certain product functionality. If we are unsuccessful in establishing or maintaining our strategic relationships with
these third parties, our ability to compete in the marketplace or to grow our revenues would be impaired and our operating results
would suffer.
We offer our PC application-based products primarily on Windows and Macintosh platforms. To the extent that there is a
continued slowdown of customer purchases of personal computers on either the Windows or Macintosh platform or in general,
to the extent that we have difficulty transitioning product or version releases to new Windows and Macintosh operating systems,
or to the extent that significant demand arises for our products or competitive products on other platforms before we choose and
are able to offer our products on these platforms, our business could be harmed. To the extent new releases of operating systems,
including for non-PC devices, or other third-party products, platforms or devices make it more difficult for our products to perform,
and our customers are persuaded to use alternative technologies, our business could be harmed.
Introduction of new products, services and business models by existing and new competitors could harm our competitive position
and results of operations.
The markets for our products and services are characterized by intense competition, evolving industry standards, emerging
business and distribution models, disruptive software and hardware technology developments, frequent new product and service
introductions, including limited functionality alternatives available at lower costs or free of charge, short product and service life
cycles and price sensitivity on the part of consumers, all of which may result in downward pressure on pricing and gross margins
and could adversely affect our renewal and upgrade rates. Our future success will depend on our ability to enhance our existing
products and services, introduce new products and services on a timely and cost-effective basis, meet changing customer needs,
extend our core technology into new applications, and anticipate and respond to emerging standards, business models, software
delivery methods and other technological changes, such as the evolution and emergence of digital application marketplaces as a
direct sales and software delivery environment. These digital application marketplaces often have exclusive distribution for certain
platforms, which may make it more difficult for us to compete in these markets. If any competing products, services, or operating
systems achieve widespread acceptance, our operating results could suffer. In addition, consolidation has occurred among some
of the competitors in the markets in which we compete. Further consolidations in these markets may subject us to increased
competitive pressures and may therefore harm our results of operations.
For additional information regarding our competition and the risks arising out of the competitive environment in which we
operate, see the section entitled “Competition” contained in Item 1 of this Annual Report on Form 10-K.
If we fail to successfully manage transitions to new business models and markets, our results of operations could be negatively
impacted.
We plan to release numerous new product and service offerings and employ new software delivery methods in connection
with our diversification into new business models and markets. It is uncertain whether these strategies will prove successful or
whether we will be able to develop the necessary infrastructure and business models more quickly than our competitors. Market
acceptance of these new product and service offerings will be dependent on our ability to (1) include functionality and usability
in such releases that address certain customer requirements with which our operating history is not extensive, and (2) to optimally
price our products in light of marketplace conditions, our costs and consumer demand. Some of these new product and service
offerings could subject us to increased risk of legal liability related to the provision of services as well as cause us to incur significant
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technical, legal or other costs. For example, with our introduction of on-demand or cloud-based services and subscription-based
licensing models, such as Creative Cloud, we are entering markets that are not yet fully mature. Market acceptance of such services
is affected by a variety of factors, including security, reliability, performance, social/community engagement, customer concerns
with entrusting a third party to store and manage their data, public concerns regarding privacy and the enactment of laws or
regulations that restrict our ability to provide such services to customers in the U.S. or internationally.
Additionally, customer requirements for open standards or open-source products could impact adoption or use of some of
our products or services. To the extent we incorrectly predict customer requirements for such products or services, or if there is a
delay in market acceptance of such products or services, our business could be harmed.
From time to time we open source certain of our technology initiatives, provide broader open access to our technology,
license certain of our technology on a royalty-free basis, and release selected technology for industry standardization. These
changes may have negative revenue implications and make it easier for our competitors to produce products or services similar
to ours. If we are unable to respond to these competitive threats, our business could be harmed.
We are also devoting significant resources to the development of technologies and service offerings in markets where our
operating history is not extensive, including cloud-based computing and non-PC device markets. These new offerings and markets
require a considerable investment of technical, financial, compliance and sales resources, and a scalable organization. Many of
our competitors may have advantages over us due to their larger presence, larger developer network, deeper experience in the
cloud-based computing and non-PC device markets, and greater sales, consulting and marketing resources. If we are unable to
successfully establish these new offerings in light of the competitive environment, our results of operations could be negatively
impacted.
The increased emphasis on a cloud strategy may give rise to risks that could harm our business.
To accelerate the growth of our business, we launched our subscription-based Creative Cloud offering in fiscal 2012. As a
result, we expect to derive an increasing portion of our revenues in the future from subscriptions to our creative tools and cloudbased offerings. This subscription model prices and delivers our products in a way that differs from the historical pricing and
delivery methods of our creative tools. These changes reflect a shift from perpetual license sales and distribution of our software
in favor of providing our customers the right to access certain of our software in a hosted environment or use downloaded software
for a specified subscription period. As our customers’ purchases trend away from perpetual licenses toward subscriptions, we are
experiencing and will continue to experience a deferral of revenues and cash received from customers. This cloud strategy requires
continued investment in product development and cloud operations, and may give rise to a number of risks, including the following:
•
if new or current customers desire only perpetual licenses, our subscription sales may lag behind expectations;
•
the increased emphasis on a cloud strategy may raise concerns among our installed perpetual license customer base;
•
we may be unsuccessful in maintaining our target pricing, new seat adoption and projected renewal rates, or we may
select a target price that is not optimal and could negatively affect our sales or earnings;
•
our revenues are expected to decline over the short term and may decline over the long term as a result of this strategy;
•
our shift to a subscription licensing model may result in confusion among our customers, partners, resellers and investors;
•
our relationships with existing partners that resell perpetual license products may be damaged; and
•
we may incur costs at a higher than forecasted rate as we expand our cloud operations.
Revenue from our product and service offerings may be difficult to predict.
As previously discussed, we are devoting significant resources to the development of product and service offerings as well
as new distribution models where our operating history is not extensive. As our traditional perpetual license business shifts toward
our subscription licensing model, our perpetual license revenue may decline more quickly than anticipated. Under a subscription
model, downturns or upturns in sales may not be immediately reflected in our reported financial results. Subscription pricing
allows customers to use our products at a lower initial cost when compared to the sale of a perpetual license. Although the
subscription model is designed to increase the number of customers who purchase our products and services and create a recurring
revenue stream that is more predictable, it creates certain risks related to the timing of revenue recognition and reduced cash flows.
As a result, a portion of the subscription-based revenue we report each quarter results from the recognition of deferred
revenue relating to subscription agreements entered into during previous quarters. A decline in new or renewed subscriptions in
any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our
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revenue in future quarters. If we were to experience significant downturns in subscription sales and renewal rates, our reported
financial results might not reflect such downturns until future periods. A subscription model could also make it difficult for us to
rapidly increase our revenues from subscription- or SaaS-based services through additional sales in any period, as revenue from
new customers will be recognized over the applicable subscription term. Further, any increases in sales under our subscription
sales model could result in decreased revenues over the short term if they are offset by a decline in sales from perpetual license
customers.
Additionally, in connection with our sales efforts to enterprise customers and our introduction of enterprise term license
agreements, a number of factors could make our revenue less predictable, including longer than expected sales and implementation
cycles, decisions to open source certain of our technology initiatives, potential deferral of revenue due to multiple-element revenue
arrangements and alternate licensing arrangements. If any of our assumptions about revenue from our new businesses or our
addition of a subscription-based model prove incorrect, our actual results may vary materially from those anticipated, estimated
or projected.
We may be unable to predict subscription renewal or upgrade rates and the impact these rates may have on our future revenue
and operating results.
The SaaS business model we utilize in our Adobe Marketing Cloud offerings typically involves selling services on a
subscription basis pursuant to service agreements that are generally one to three years in length, our Creative Cloud subscription
agreements are generally month to month or one year in length, and subscription agreements for other products and services may
provide for shorter or longer terms. Although many of our service and subscription agreements contain automatic renewal terms,
our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription
period, and some customers elect not to renew. We cannot provide assurance that these subscriptions will be renewed at the same
or higher level of service, for the same number of seats or for the same duration of time, if at all. Moreover, under certain
circumstances, some of our customers have the right to cancel their service agreements prior to the expiration of the terms of their
agreements. We cannot be assured that we will be able to accurately predict future customer renewal rates. Our customers’ renewal
rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our services,
the prices of our services, the prices of services offered by our competitors, mergers and acquisitions affecting our customer base,
reductions in our customers’ spending levels, or declines in consumer activity as a result of economic downturns or uncertainty
in financial markets. If our customers do not renew their subscriptions for our services or if they renew on less favorable terms to
us, our revenues may decline.
Our future growth is also affected by our ability to sell additional features and services to our current customers, which
depends on a number of factors, including our customers’ satisfaction with our services, the prices of our services and general
economic conditions. If our efforts to cross-sell and upsell to our customers are unsuccessful, the rate at which our business grows
might decline.
Uncertainty about current and future economic conditions and other adverse changes in general political conditions in any of the
major countries in which we do business could adversely affect our operating results.
As our business has grown, we have become increasingly subject to the risks arising from adverse changes in economic
and political conditions, both domestically and globally. Uncertainty about current and future economic and political conditions
on us, our customers, suppliers and partners, makes it difficult for us to forecast operating results and to make decisions about
future investments. If economic growth in the U.S., Europe and other countries slows or does not improve, or if the U.S., Europe
or other countries in which we do business experience further economic recessions, many customers may delay or reduce technology
purchases, advertising spending or marketing spending. This could result in reductions in sales of our products and services, longer
sales cycles, slower adoption of new technologies and increased price competition. Deterioration in economic conditions in any
of the countries in which we do business could also cause slower or impaired collections on accounts receivable, which may
adversely impact our liquidity and financial condition.
There could be a number of effects from a financial institution credit crisis on our business, which could include impaired
credit availability and financial stability of our customers, including our distribution partners and channels. A disruption in the
financial markets may also have an effect on our derivative counterparties and could also impair our banking partners on which
we rely for operating cash management. Any of these events would likely harm our business, results of operations and financial
condition.
Political instability in any of the major countries in which we do business would also likely harm our business, results of
operations and financial condition.
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We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our
business and management.
We have in the past and may in the future acquire additional companies, products or technologies. We acquired Omniture
in October 2009, Day Software (“Day”) in October 2010 and Efficient Frontier in January 2012, as well as other smaller business
and asset acquisitions. We may not realize the anticipated benefits of an acquisition, each of which involves numerous risks. These
risks include:
•
difficulty in integrating the operations and personnel of the acquired company;
•
difficulty in effectively integrating the acquired technologies, products or services with our current technologies,
products or services;
•
difficulty in maintaining controls, procedures and policies during the transition and integration;
•
entry into markets in which we have no or limited direct prior experience and where competitors in such markets have
stronger market positions;
•
disruption of our ongoing business and distraction of our management and employees from other opportunities and
challenges;
•
difficulty integrating the acquired company’s accounting, management information, human resources and other
administrative systems;
•
inability to retain personnel of the acquired business;
•
inability to retain key customers, distributors, vendors and other business partners of the acquired business;
•
inability to achieve the financial and strategic goals for the acquired and combined businesses;
•
inability to take advantage of anticipated tax benefits as a result of unforeseen difficulties in our integration activities;
•
incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating
results;
•
potential additional exposure to fluctuations in currency exchange rates;
•
potential impairment of our relationships with employees, customers, partners, distributors or third-party providers of
our technologies, products or services;
•
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or
challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s
intellectual property, product quality or product architecture, data back-up and security (including security from cyberattacks), privacy practices, revenue recognition or other accounting practices, employee, customer or partner issues or
legal and financial contingencies;
•
exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an
acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other
third parties;
•
incurring significant exit charges if products or services acquired in business combinations are unsuccessful;
•
potential inability to assert that internal controls over financial reporting are effective;
•
potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay
or prevent such acquisitions;
•
potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product
and service offerings; and
•
potential incompatibility of business cultures.
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Mergers and acquisitions of high technology companies are inherently risky, and ultimately, if we do not complete an
announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize the
benefits of the acquisition to the extent anticipated.
We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a
result of litigation or other proceedings.
In connection with the enforcement of our own intellectual property rights, the acquisition of third-party intellectual property
rights, or disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights,
we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual
property disputes and litigation are typically very costly and can be disruptive to our business operations by diverting the attention
and energies of management and key technical personnel. Although we have successfully defended or resolved past litigation and
disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes, including
those emanating from non-practicing entities, could subject us to significant liabilities, require us to enter into royalty and licensing
arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject
us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the markets in which
we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under
various license arrangements and service agreements. In addition, we may incur significant costs in acquiring the necessary thirdparty intellectual property rights for use in our products. Any of these occurrences could seriously harm our business.
We may not be able to protect our intellectual property rights, including our source code, from third-party infringers or unauthorized
copying, use or disclosure.
Although we defend our intellectual property rights and combat unlicensed copying, access and use of software and
intellectual property through a variety of techniques, preventing unauthorized use or infringement of our rights is inherently
difficult. We actively combat software piracy as part of our enforcement of our intellectual property rights, but we nonetheless
lose significant revenue due to illegal use of our software. If piracy activities increase, it may further harm our business.
Additionally, we take significant measures to protect the secrecy of our confidential information and trade secrets, including
our source code. If unauthorized disclosure of our source code occurs through security breach, attack or otherwise, we could
potentially lose future trade secret protection for that source code. The loss of future trade secret protection could make it easier
for third parties to compete with our products by copying functionality, which could adversely affect our revenue and operating
margins. We also seek to protect our confidential information and trade secrets through the use of non-disclosure agreements with
our customers, contractors, vendors and partners. However, there is a risk that our confidential information and trade secrets may
be disclosed or published without our authorization, and in these situations it may be difficult and/or costly for us to enforce our
rights.
Increasing regulatory focus on privacy issues and expanding laws and regulations could impact our new business models and
expose us to increased liability.
Our new business models are more highly regulated, including for privacy and data security. We are also expanding these
new models in countries that have more stringent data protection laws than those in the U.S. With these new business models, our
liability exposure, compliance requirements and costs associated with privacy issues will likely increase. Privacy laws globally
are changing and evolving. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies
collect, process, use, store, share or transmit personal data. New laws and industry self-regulatory codes have been enacted and
more are being considered that may affect our ability to reach current and prospective consumers, to understand how our products
and services are being used, to respond to consumer requests allowed under the laws, and to implement our new business models
effectively. These new laws and regulations would similarly affect our competitors as well as our customers. Any perception of
our practices or products as an invasion of privacy, whether or not consistent with current regulations and industry practices, may
subject us to public criticism, class action lawsuits, reputational harm or claims by regulators, industry groups or other third parties,
all of which could disrupt our business and expose us to increased liability.
On behalf of certain of our customers using some of our services, we collect and store information derived from the activities
of website visitors, which may include anonymous and/or personal information. This enables us to provide such customers with
reports on aggregated anonymous or personal information from and about the visitors to their websites in the manner specifically
directed by each such individual customer. Federal, state and foreign governments and agencies have adopted or are considering
adopting laws regarding the collection, use and disclosure of this information. Our compliance with privacy laws and regulations
and our reputation among the public body of website visitors depend on such customers’ adherence to privacy laws and regulations
and their use of our services in ways consistent with such visitors’ expectations. We also rely on representations made to us by
customers that their own use of our services and the information they provide to us via our services do not violate any applicable
privacy laws, rules and regulations or their own privacy policies. We ask customers to represent to us that they provide their website
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visitors the opportunity to “opt-out” of the information collection associated with our services, as applicable. We do not formally
audit such customers to confirm compliance with these representations. If these representations are false or if such customers do
not otherwise comply with applicable privacy laws, we could face potentially adverse publicity and possible legal or other regulatory
action. In addition, some countries are considering enacting laws that would expand the scope of privacy-related obligations
required of service providers, such as Adobe, that would require additional compliance expense and increased liability.
Security vulnerabilities in our products and systems could lead to reduced revenues or to liability claims.
Maintaining the security of our products, computers and networks is a critical issue for us and our customers. Security
researchers, criminal hackers and other third parties regularly develop new techniques to penetrate computer and network security
measures. In addition, hackers also develop and deploy viruses, worms and other malicious software programs, some of which
may be specifically designed to attack our products, systems, computers or networks. Additionally, outside parties may attempt
to fraudulently induce our employees or users of our products to disclose sensitive information in order to gain access to our data
or our customers’ data. These potential breaches of our security measures and the accidental loss, inadvertent disclosure or
unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees or our
customers, including the potential loss or disclosure of such information or data as a result of hacking, fraud, trickery or other
forms of deception, could expose us, our employees, our customers or the individuals affected to a risk of loss or misuse of this
information, result in litigation and potential liability or fines for us, damage our brand and reputation or otherwise harm our
business.
Although these are industry-wide problems that affect computers and products across all platforms, they affect our products
in particular because hackers tend to focus their efforts on the most popular operating systems and programs and we expect them
to continue to do so. Critical vulnerabilities may be identified in certain of our applications. These vulnerabilities could cause such
applications to crash and could potentially allow an attacker to take control of the affected system, which could result in liability
to us or limit our ability to conduct our business and deliver our products and services to customers. We devote significant resources
to address security vulnerabilities through engineering more secure products, enhancing security and reliability features in our
products and systems, code hardening, conducting rigorous penetration tests, deploying security updates to address security
vulnerabilities and improving our incident response time. The cost of these steps could reduce our operating margins. Despite
these efforts, actual or perceived security vulnerabilities in our products and systems may lead to claims against us and harm our
reputation, and could lead some customers to seek to return products, to stop using certain services, to reduce or delay future
purchases of products or services, or to use competing products or services. Customers may also increase their expenditures on
security measures designed to protect their existing computer systems from attack, which could delay adoption of new technologies.
Further, if we or our customers are subject to an attack, or our technology is utilized in a third-party attack, it may be necessary
for us to take certain measures and make certain expenditures to take appropriate responsive and preventative steps. Any of these
actions by customers could adversely affect our revenues.
Some of our lines of business rely on us or our third-party service providers to host and deliver services and data, and any
interruptions or delays in these hosted services, security or privacy breaches, or failures in data collection could expose us to
liability and harm our business and reputation.
Some of our lines of business and services, including our online store at adobe.com, our Creative Cloud offering, our hosted
Digital Media offerings and our Adobe Marketing Cloud offerings, rely on services hosted and controlled directly by us or by
third parties. Because we hold large amounts of customer data, some of which is hosted in third-party facilities, a security incident
may compromise the confidentiality, integrity or availability of customer data. Unauthorized access to customer data may be
obtained through break-ins, breach of our secure network by an unauthorized party, employee theft or misuse, or other misconduct.
It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by
customers. While our products and services provide and support strong password controls, IP restriction and account controls,
their use is controlled by the customer. As such, this could allow accounts to be created with weak passwords, which could result
in allowing an attacker to gain access to customer data. Additionally, failure by customers to remove accounts of their own
employees, or granting of accounts by the customer in an uncontrolled manner, may allow for access by former or unauthorized
customer employees. If there were ever an inadvertent disclosure of personal information, or if a third party were to gain
unauthorized access to the personal information we possess on behalf of our customers, our operations could be disrupted, our
reputation could be harmed and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized
disclosure of the information we collect or breach of our security could damage our reputation, result in the loss of customers and
harm our business.
Because of the large amount of data that we collect and manage on behalf of our customers, it is possible that hardware or
software failures or errors in our systems (or those of our third-party service providers) could result in data loss or corruption or
cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore,
our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the internet, the
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failure of our network or software systems, security breaches or significant variability in visitor traffic on customer websites. In
addition, computer viruses may harm our systems causing us to lose data, and the transmission of computer viruses could expose
us to litigation. We may also find, on occasion, that we cannot deliver data and reports to our customers in near real time because
of a number of factors, including significant spikes in consumer activity on their websites or failures of our network or software.
We may be liable to our customers for damages they may incur resulting from these events, such as loss of business, loss of future
revenues, breach of contract or for the loss of goodwill to their business. In addition to potential liability, if we supply inaccurate
information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our
reputation could be harmed and we could lose customers.
Failure to manage our sales and distribution channels and third-party customer service and technical support providers effectively
could result in a loss of revenue and harm to our business.
A significant amount of our revenue for application products is from one distributor, Ingram Micro, Inc., which represented
11% of our net revenue for fiscal 2012. We have multiple non-exclusive, independently negotiated distribution agreements with
Ingram Micro and its subsidiaries covering our arrangements in specified countries and regions. Each of these contracts has an
independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one
agreement does not affect the status of any of the other agreements. In fiscal 2012, no single agreement with this distributor was
responsible for over 5% of our total net revenue. If any one of our agreements with this distributor were terminated, we believe
we could make arrangements with new or existing distributors to distribute our products without a substantial disruption to our
business; however, any prolonged delay in securing a replacement distributor could have a negative short-term impact on our
results of operations.
Successfully managing our indirect channel efforts to reach various potential customer segments for our products and
services is a complex process across the broad range of geographies where we do business. Our distributors and other channel
partners are independent businesses that we do not control. Notwithstanding the independence of our channel partners, we face
potential legal risk and reputational harm from the activities of these third parties including, but not limited to, export control
violations, workplace conditions, corruption and anti-competitive behavior. Although we have undertaken efforts to reduce these
third-party risks, they remain present. We cannot be certain that our distribution channel will continue to market or sell our products
effectively. If our distribution channel is not successful, we may lose sales opportunities, customers and revenues.
Our distributors also sell our competitors’ products, and if they favor our competitors’ products for any reason, they may
fail to market our products as effectively or to devote resources necessary to provide effective sales, which would cause our results
to suffer. We also distribute some products through our OEM channel, and if our OEMs decide not to bundle our applications on
their devices, our results could suffer.
In addition, the financial health of our distributors and our continuing relationships with them are important to our success.
Some of these distributors may be adversely impacted by changes to our business model and practices, such as our launch of
Creative Cloud, including our release of Creative Cloud offerings for teams and enterprises, or unable to withstand adverse changes
in current economic conditions, which could result in insolvency and/or the inability of such distributors to obtain credit to
finance purchases of our products. In addition, weakness in the end-user market could further negatively affect the cash flows of
our distributors who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Our business
could be harmed if the financial condition of some of these distributors substantially weakened and we were unable to timely
secure replacement distributors.
We also sell certain of our products and services through our direct sales force. Risks associated with this sales channel
include longer sales and collection cycles associated with direct sales efforts, challenges related to hiring, retaining and motivating
our direct sales force, and substantial amounts of training for sales representatives, including regular updates to cover new and
upgraded systems, products and services. Moreover, our recent hires and sales personnel added through our recent business
acquisitions may not become as productive as we would like, as in most cases it takes a significant period of time before they
achieve full productivity. Our business could be seriously harmed if these expansion efforts do not generate a corresponding
significant increase in revenues and we are unable to achieve the efficiencies we anticipate. In addition, the loss of key sales
employees could impact our relationships and future ability to sell to certain of these accounts covered by such employees.
We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically and
internationally. Risks associated with licensing and selling products and services to governmental entities include longer sales
cycles associated with selling to diverse governmental entities, varying governmental budgeting processes and timelines and
adherence to potentially complex specific procurement regulations and other requirements. Ineffectively managing these risks
could result in the potential assessment of penalties and fines, harm to our reputation and lost sales opportunities to such
governmental entities.
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We outsource a substantial portion of our customer service and technical support activities to third-party service providers.
We rely heavily on these third-party customer service and technical support representatives working on our behalf and we expect
to continue to rely heavily on third parties in the future. This strategy provides us with lower operating costs and greater flexibility,
but also presents risks to our business, including the possibilities that we may not be able to influence the quality of support that
we provide as directly as we would be able to do in our own company-run call centers, and that our customers may react negatively
to providing information to, and receiving support from, third-party organizations, especially if based overseas. If we encounter
problems with our third-party customer service and technical support providers, our reputation may be harmed and our revenue
may be adversely affected.
Catastrophic events may disrupt our business.
We are a highly automated business and rely on our network infrastructure and enterprise applications, internal technology
systems and our website for our development, marketing, operational, support, hosted services and sales activities. In addition,
some of our businesses rely on third-party hosted services and we do not control the operation of third-party data center facilities
serving our customers from around the world, which increases our vulnerability. A disruption, infiltration or failure of these systems
or third-party hosted services in the event of a major earthquake, fire, flood, power loss, telecommunications failure, software or
hardware malfunctions, cyber-attack, war, terrorist attack or other catastrophic event could cause system interruptions, reputational
harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data
security and loss of critical data and could prevent us from fulfilling our customers' orders. Our corporate headquarters, a significant
portion of our research and development activities, certain of our data centers and certain other critical business operations are
located in the San Francisco Bay Area, and additional facilities where we conduct significant operations are located in the Salt
Lake Valley Area, both of which are near major earthquake faults. We have developed certain disaster recovery plans and backup
systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction or disruption
of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct
normal business operations and, as a result, our future operating results could be adversely affected.
Net revenue, margin or earnings shortfalls or the volatility of the market generally may cause the market price of our stock to
decline.
The market price for our common stock has experienced significant fluctuations and may continue to fluctuate significantly.
A number of factors may affect the market price for our common stock, including:
•
shortfalls in our revenue, margins, earnings or key performance metrics;
•
confusion on the part of industry analysts and investors about the long-term impact to our business resulting from our
subscription offerings;
•
shortfalls in the number of paid, active Creative Cloud subscribers and ARR;
•
changes in estimates or recommendations by securities analysts;
•
the announcement of new products, product enhancements or service introductions by us or our competitors;
•
seasonal variations in the demand for our products and services and the implementation cycles for our new customers;
•
the loss of a large customer or our inability to increase sales to existing customers and attract new customers;
•
variations in our or our competitors' results of operations, changes in the competitive landscape generally and
developments in our industry; and
•
unusual events such as significant acquisitions, divestitures, litigation, general socio-economic, regulatory, political or
market conditions and other factors, including factors unrelated to our operating performance.
We are subject to risks associated with compliance with laws and regulations globally which may harm our business.
We are a global company subject to varied and complex laws, regulations and customs domestically and internationally.
These laws and regulations relate to a number of aspects of our business, including trade protection, import and export control,
data and transaction processing security, records management, employee data privacy, user-generated content hosted on websites
we operate, corporate governance, employee and third-party complaints, gift policies, conflicts of interest, employment and labor
relations laws, securities regulations and other regulatory requirements affecting trade and investment. The application of these
laws and regulations to our business is often unclear and may at times conflict. Compliance with these laws and regulations may
involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance
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could also result in fines, damages, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of
our business, and damage to our reputation. We incur additional legal compliance costs associated with our global operations and
could become subject to legal penalties if we fail to comply with local laws and regulations in U.S. jurisdictions or in foreign
countries, which laws and regulations may be substantially different from those in the U.S. In many foreign countries, particularly
in those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable
to us such as the Foreign Corrupt Practices Act. Although we implement policies and procedures designed to ensure compliance
with these laws, there can be no assurance that all of our employees, contractors and agents, as well as those companies to which
we outsource certain of our business operations, including those based in or from countries where practices that violate such U.S.
laws may be customary, will not take actions in violation of our internal policies. Any such violation, even if prohibited by our
internal policies, could have an adverse effect on our business.
As a global business that generates approximately 50% of our total revenue from sales to customers outside of the Americas,
we are subject to a number of risks, including:
•
foreign currency fluctuations;
•
changes in government preferences for software procurement;
•
international economic, political and labor conditions;
•
tax laws (including U.S. taxes on foreign subsidiaries);
•
increased financial accounting and reporting burdens and complexities;
•
unexpected changes in, or impositions of, legislative or regulatory requirements;
•
failure of laws to protect our intellectual property rights adequately;
•
inadequate local infrastructure and difficulties in managing and staffing international operations;
•
delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers
and restrictions;
•
the imposition of governmental economic sanctions on countries in which we do business or where we plan to expand
our business;
•
transportation delays;
•
operating in locations with a higher incidence of corruption and fraudulent business practices; and
•
other factors beyond our control, including terrorism, war, natural disasters and pandemics.
If sales to any of our customers outside of the Americas are delayed or canceled because of any of the above factors, our
revenue may be negatively impacted.
In addition, approximately 48% of our employees are located outside the U.S. Accordingly, we are exposed to changes in
laws governing our employee relationships in various U.S. and foreign jurisdictions, including laws and regulations regarding
wage and hour requirements, fair labor standards, employee data privacy, unemployment tax rates, workers' compensation rates,
citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs. We also
intend to continue expansion of our international operations and international sales and marketing activities. Expansion in
international markets has required, and will continue to require, significant management attention and resources. We may be unable
to scale our infrastructure effectively or as quickly as our competitors in these markets, and our revenues may not increase to offset
these expected increases in costs and operating expenses, which would cause our results to suffer.
We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure.
Our operating results are subject to fluctuations in foreign currency exchange rates. We attempt to mitigate a portion of
these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and
expense. We have established a hedging program to partially hedge our exposure to foreign currency exchange rate fluctuations
for various currencies. If the foreign currency hedging markets are negatively affected by clearing and trade execution regulations
imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the cost of hedging our foreign exchange exposure
could increase.
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We regularly review our hedging program and make adjustments as necessary based on the judgment factors discussed
above. Our hedging activities may not offset more than a portion of the adverse financial impact resulting from unfavorable
movement in foreign currency exchange rates, which could adversely affect our financial condition or results of operations.
We have issued $1.5 billion of notes in a debt offering and may incur other debt in the future, which may adversely affect our
financial condition and future financial results.
In the first quarter of fiscal 2010, we issued $1.5 billion in senior unsecured notes. We also have a $1.0 billion revolving
credit facility, which is currently undrawn. Although we have no current plans to request any advances under this credit facility,
we may use the proceeds of any future borrowing for general corporate purposes, or for future acquisitions or expansion of our
business.
This debt may adversely affect our financial condition and future financial results by, among other things:
•
requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing
the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions; and
•
limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
Our senior unsecured notes and revolving credit facility impose restrictions on us and require us to maintain compliance
with specified covenants. Our ability to comply with these covenants may be affected by events beyond our control. If we breach
any of the covenants and do not obtain a waiver from the lenders or noteholders, then, subject to applicable cure periods, any
outstanding indebtedness may be declared immediately due and payable.
In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our
debt and equity securities. Under certain circumstances, if our credit ratings are downgraded or other negative action is taken, the
interest rate payable by us under our revolving credit facility could increase. Downgrades in our credit ratings could also restrict
our ability to obtain additional financing in the future and could affect the terms of any such financing.
Changes in, or interpretations of, accounting principles could have a significant impact on our financial position and results of
operations.
We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to
interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported
results and may even retroactively affect previously reported transactions.
For example, the U.S.-based Financial Accounting Standards Board (“FASB”) is currently working together with the
International Accounting Standards Board (“IASB”) on several projects to further align accounting principles and facilitate more
comparable financial reporting between companies who are required to follow GAAP under SEC regulations and those who are
required to follow International Financial Reporting Standards outside of the U.S. These efforts by the FASB and IASB may result
in different accounting principles under GAAP that may result in materially different financial results for us in areas including,
but not limited to, principles for recognizing revenue and lease accounting.
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.
Under GAAP, we review our goodwill and amortizable intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. GAAP requires us to test for goodwill impairment at least
annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable
intangible assets may not be recoverable include a decline in stock price and market capitalization, future cash flows and slower
growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the
period in which any impairment of our goodwill or amortizable intangible assets is determined, resulting in an impact on our
results of operations.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant
portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S.
income taxes on earnings from the United States, we provide for U.S. income taxes on the earnings of foreign subsidiaries unless
the subsidiaries' earnings are considered permanently reinvested outside the United States. While we do not anticipate changing
our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested
are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.
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Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to
discrete items and to earnings considered as permanently reinvested in foreign operations. Unanticipated changes in our tax rates
could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax
rates in jurisdictions where our income is earned, by changes in, or our interpretation of, tax rules and regulations in the jurisdictions
in which we do business, by unanticipated decreases in the amount of earnings in countries with low statutory tax rates, by lapses
of the availability of the U.S. research and development tax credit, or by changes in the valuation of our deferred tax assets and
liabilities.
In addition, we are subject to the continual examination of our income tax returns by the Internal Revenue Service (“IRS”)
and other domestic and foreign tax authorities, including a current examination by the IRS of our fiscal 2008 and 2009 tax returns.
These examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. We regularly
assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes
and have reserved for potential adjustments that may result from the current examinations. We believe such estimates to be
reasonable; however, there can be no assurance that the final determination of any of these examinations will not have an adverse
effect on our operating results and financial position.
If we are unable to recruit and retain key personnel our business may be harmed.
Much of our future success depends on the continued service and availability of our senior management. These individuals
have acquired specialized knowledge and skills with respect to Adobe. The loss of any of these individuals could harm our business.
Our business is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel across all levels of our
organization. Experienced personnel in the information technology industry are in high demand and competition for their talents
is intense in many areas where our employees are located. If we are unable to continue to successfully attract and retain key
personnel, our business may be harmed. Effective succession planning is also a key factor for our long-term success. Our failure
to enable the effective transfer of knowledge and facilitate smooth transitions with regards to our key employees could adversely
affect our long-term strategic planning and execution.
We believe that a critical contributor to our success to date has been our corporate culture, which we have built to foster
innovation and teamwork. As we grow, including from the integration of employees and businesses acquired in connection with
our previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture which could
negatively affect our ability to retain and recruit personnel and otherwise adversely affect our future success.
Our investment portfolio may become impaired by deterioration of the capital markets.
Our cash equivalent and short-term investment portfolio as of November 30, 2012 consisted of corporate bonds and
commercial paper, foreign government securities, money market mutual funds and repurchase agreements, municipal securities,
time deposits, U.S. agency securities and U.S. Treasury securities. We follow an established investment policy and set of guidelines
to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits
our exposure to any one issuer, as well as our maximum exposure to various asset classes.
Should financial market conditions worsen in the future, investments in some financial instruments may pose risks arising
from market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause our other income and
expense to vary from expectations. As of November 30, 2012, we had no material impairment charges associated with our shortterm investment portfolio, and although we believe our current investment portfolio has little risk of material impairment, we
cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment
portfolio will remain materially unimpaired.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
The following table sets forth the location, approximate square footage and use of each of the principal properties used by
Adobe during fiscal 2012. We lease or sublease all of these properties with the exception of our property in Noida, India where
we own the building and lease the land, our corporate offices in San Jose where we own the land and lease the buildings, and in
San Francisco on Townsend, Waltham and Lehi where we own the building and land. All leased properties are leased under
operating leases. Such leases expire at various times through 2028, with the exception of our land lease in Noida, India that expires
in 2091. The annual base rent expense (including operating expenses, property taxes and assessments, as applicable) for all leased
facilities is currently approximately $90.8 million and is subject to annual adjustments as well as changes in interest rates.
Location
North America:
345 Park Avenue
San Jose, CA 95110, USA
321 Park Avenue
San Jose, CA 95110, USA
151 Almaden Boulevard
San Jose, CA 95110, USA
601 and 625 Townsend Street
San Francisco, CA 94103, USA
801 N. 34th Street-Waterfront
Seattle, WA 98103, USA
3900 Adobe Way
Lehi, UT 84043, USA
21 Hickory Drive
Waltham, MA 02451, USA
250 Brannan Street
San Francisco, CA 94107, USA
7930 Jones Branch Drive
McLean, VA 22102, USA
1540 Broadway
New York, NY 10036, USA
343 Preston Street
Ottawa, Ontario K1S 5N4, Canada
India:
Adobe Towers, 1-1A, Sector 25A
Noida, U.P.
Adobe Towers, Plot #6, Sector 127
Expressway, Noida, U.P.
Salapuria Infinity, Ground Floor,
1st Floor, 3rd Floor
#5, Bannerghatta Road,
Bangalore
Japan:
Gate City Osaki East Tower
1-11 Osaki
Shinagawa-ku, Tokyo
Approximate
Square
Footage
Use
378,000
321,000
Research, product development, sales, marketing and
administration
Research, product development, sales and marketing
267,000
Product development, sales and administration
346,000
182,000
(1)
(2)
280,000
108,000
(3)
35,000
34,000
Product development, sales and marketing
(4)
37,000
122,000
Research, product development, sales, marketing and
administration
Product development, sales, technical support and
administration
Research, product development, sales, marketing and
administration
Research, product development, sales and marketing
Sales and marketing
Sales and marketing
(5)
Research, product development, sales, marketing and
administration
191,000
Product development
80,000
Product development
160,000
Research and product development
56,000
Product development, sales and marketing
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Location
China:
Block A, SP Tower, 11th, 19th,
21st & 22nd Floors
Block B, SP Tower, 19th Floor
Block D, SP Tower, 10th Floor
Tsinghua Science Park, Yard 1
Zhongguancun Donglu, Haidian District
Beijing
Romania:
26 Z Timisoara Blvd, Anchor Plaza
Lujerului, Sector 6
Bucharest
UK:
Market House
Market Street
Maidenhead, Berkshire, SL6 8AD
Germany:
Grosse Elbstrasse 27
Hamburg
Approximate
Square
Footage
Use
94,000
Research and product development
71,000
Research and product development
49,000
Product development, sales, marketing and administration
36,000
Research and product development
_________________________________________
(1)
The total square footage is 346,000, of which we occupy 272,000 square feet, or approximately 79% of this facility; 74,000
square feet is unoccupied basement space.
(2)
The total square footage is 182,000, of which we occupy 162,000 square feet, or approximately 89% of this facility. The
remaining square footage is subleased.
(3)
Of the total square footage of 108,000, we occupy 36,000 square feet, or approximately 33% of this facility; 54,000 square
feet is unoccupied and the remaining square footage is leased.
(4)
The total square footage is 34,000, of which we occupy 31,000 square feet, or approximately 91% of this facility. The remaining
square footage is subleased.
(5)
The total square footage is 122,000, of which we occupy 65,000 square feet, or approximately 53% of this facility; 42,000
square feet is unoccupied. The remaining square footage is subleased.
In general, all facilities are in good condition, suitable for the conduct of our business and are operating at an average
capacity of approximately 88%.
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ITEM 3. LEGAL PROCEEDINGS
In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights,
including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted
litigation. Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by
diverting the attention and energies of management and key technical personnel. Although we have successfully defended or
resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual
property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable
terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our
sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy
indemnification commitments with our customers including contractual provisions under various license arrangements and service
agreements.
In addition to intellectual property disputes, such as those discussed above and others, we are subject to legal proceedings,
claims and investigations in the ordinary course of business, including claims relating to commercial, employment and other
matters. Some of these disputes and legal proceedings may include speculative claims for substantial or indeterminate amounts
of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether
potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate disclosure
requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed
with our Audit Committee and our independent registered public accounting firm.
We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations,
settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise
specifically disclosed here or in our Notes to Consolidated Financial Statements , we have determined that no provision for liability
nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding
amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss
cannot be estimated; or (c) such estimate is immaterial.
All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we
believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our
consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of
one or more of such proceedings, claims or investigations.
In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software
Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims
alleging improper use of litigation or violation of other laws. We believe we have valid defenses with respect to such counterclaims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any
particular period by the resolution of one or more of these counter-claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Our common stock is traded on the NASDAQ Global Select Market under the symbol “ADBE.” The following table sets
forth the high and low sales price per share of our common stock for the periods indicated.
Price Range
High
Fiscal 2012:
First Quarter ...................................................................................................................................
Second Quarter ...............................................................................................................................
Third Quarter..................................................................................................................................
Fourth Quarter ................................................................................................................................
Fiscal Year......................................................................................................................................
Fiscal 2011:
First Quarter ...................................................................................................................................
Second Quarter ...............................................................................................................................
Third Quarter..................................................................................................................................
Fourth Quarter ................................................................................................................................
Fiscal Year......................................................................................................................................
Low
$
$
$
$
$
33.73
34.70
33.92
34.61
34.70
$
$
$
$
$
26.46
29.82
30.02
31.44
26.46
$
$
$
$
$
35.39
35.86
33.01
30.42
35.86
$
$
$
$
$
27.72
31.68
22.69
23.26
22.69
Stockholders
According to the records of our transfer agent, there were 1,441 holders of record of our common stock on January 18,
2013. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate
the total number of stockholders represented by these record holders.
Dividends
We did not declare or pay any cash dividends on our common stock during fiscal 2012 or fiscal 2011. Under the terms of
our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless payment would trigger an
event of default or one currently exists. We do not anticipate paying any cash dividends in the foreseeable future.
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Issuer Purchases of Equity Securities
Below is a summary of stock repurchases for the three months ended November 30, 2012. See Note 13 of our Notes to
Consolidated Financial Statements for information regarding our stock repurchase programs.
Period
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
Average
Price
Per
Share
Shares
Repurchased
Approximate
Dollar Value
that May
Yet be
Purchased
Under the
Plan(1)
(in thousands, except average price per share)
Beginning repurchase authority.............................
September 1—September 28, 2012.......................
Shares repurchased..............................................
September 29—October 26, 2012 .........................
Shares repurchased..............................................
October 27—November 30, 2012 .........................
Shares repurchased..............................................
Total.......................................................................
2,000,000
—
$
—
—
$
—
1,024
$
32.56
1,024
$
(33,333)
(2)
1,014
2,038
$
33.18
1,014
2,038
$
$
(33,662)
(2)
1,933,005
_________________________________________
(1)
In April 2012, the Board of Directors approved a new stock repurchase program granting authority to repurchase up to $2.0
billion in common stock through the end of fiscal 2015. The new stock repurchase program approved by our Board of Directors
is similar to our previous $1.6 billion stock repurchase program granted by the Board of Directors in June 2010, which was
exhausted during fiscal 2012.
(2)
In September 2012, as part of the new stock repurchase program, we entered into a structured stock repurchase agreement
with a large financial institution whereupon we provided them with a prepayment of $100.0 million. As of November 30,
2012, approximately $33.0 million of the prepayment remained under this agreement.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data (presented in thousands, except per share amounts and employee data)
is derived from our consolidated financial statements. As our operating results are not necessarily indicative of future operating
results, this data should be read in conjunction with the consolidated financial statements and notes thereto, and with Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Fiscal Years
Operations:
Revenue..........................................................................
Gross profit ....................................................................
Income before income taxes ..........................................
Net income .....................................................................
Net income per share: ....................................................
Basic..........................................................................
Diluted.......................................................................
Shares used to compute basic net income per share ......
Shares used to compute diluted net income per share ...
Cash dividends declared per common share..................
Financial position:(2)
Cash, cash equivalents and short-term investments.......
Working capital..............................................................
Total assets.....................................................................
Debt and capital lease obligations, non-current.............
Stockholders’ equity.......................................................
Additional data:
Worldwide employees....................................................
2012
2011
2010
2009(1)
2008
$4,403,677
$3,919,895
$1,118,794
$ 832,775
$4,216,258
$3,778,385
$1,035,230
$ 832,847
$3,800,000
$3,396,498
$ 943,151
$ 774,680
$2,945,853
$2,649,121
$ 701,520
$ 386,508
$3,579,889
$3,217,259
$1,078,508
$ 871,814
$
$
1.68
1.66
494,731
502,721
$
—
$
$
1.67
1.65
497,469
503,921
$
—
$
$
1.49
1.47
519,045
525,824
$
—
$
$
0.74
0.73
524,470
530,610
$
—
$
$
$3,538,353
$3,059,608
$9,974,523
$1,496,938
$6,665,182
$2,911,692
$2,520,672
$8,991,183
$1,505,096
$5,783,113
$2,468,015
$2,147,962
$8,141,148
$1,513,662
$5,192,387
$1,904,473
$1,629,071
$7,282,237
$1,000,000
$4,890,568
$2,019,202
$1,972,504
$5,821,598
$ 350,000
$4,410,354
11,144
9,925
9,117
8,660
7,544
1.62
1.59
539,373
548,553
$
—
_________________________________________
(1)
Fiscal 2009 includes the integration of Omniture into our operations which was not present in the prior years.
(2)
Information associated with our financial position is as of the Friday closest to November 30 for the five fiscal periods
through 2012.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes thereto.
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements, including
statements regarding product plans, future growth and market opportunities which involve risks and uncertainties that could cause
actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in the section titled Risk Factors in Part 1, Item 1A of this report. You should
carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange
Commission (“SEC”), including our Quarterly Reports on Form 10-Q to be filed in fiscal 2013. When used in this report, the
words “will,” “expects,” “could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” seeks,” “targets,” “estimates,”
“looks for,” “looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally
intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements which
speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of this document.
BUSINESS OVERVIEW
Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world.
We offer a line of software and services used by creative professionals, marketers, knowledge workers, application developers,
enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and
experiences across multiple operating systems, devices and media. We market and license our software directly to enterprise
customers through our sales force and to end users through app stores and our own website at www.adobe.com. We also distribute
our products through a network of distributors, value-added resellers (“VARs”), systems integrators, independent software vendors
(“ISVs”), retailers and original equipment manufacturers (“OEMs”). In addition, we license our technology to hardware
manufacturers, software developers and service providers for use in their products and solutions. We offer some of our products
via a Software-as-a-Service (“SaaS”) model (also known as a hosted or “cloud-based” model) as well as through term subscription
and pay-per-use models. Our software runs on personal computers (“PCs”) and server-based computers, as well as on smartphones,
tablets and other devices, depending on the product. We have operations in the Americas, Europe, Middle East and Africa (“EMEA”)
and Asia-Pacific (“APAC”).
ACQUISITIONS
On January 13, 2012, we completed the acquisition of privately held Efficient Frontier, a multi-channel digital ad buying
and optimization company. During the first quarter of fiscal 2012, we began integrating Efficient Frontier into our Digital Marketing
segment, however, the impact of this acquisition was not material to our consolidated balance sheets and results of operations.
During fiscal 2011, we completed six business combinations and two asset acquisitions with aggregate purchase prices
totaling approximately $328.3 million. We have included the financial results of the business combinations in our consolidated
results of operations beginning on the respective acquisition dates, however, the impact of these acquisitions was not material to
our consolidated balance sheets and results of operations.
On October 28, 2010, we completed the acquisition of Day, a provider of Web Experience Management (“WEM”), digital
asset management and social collaboration solutions based in Basel, Switzerland and Boston, Massachusetts for approximately
$248.3 million. We have included the financial results of Day in our consolidated results of operations beginning on the acquisition
date, however, the impact of this acquisition was not material to our consolidated balance sheets and results of operations in fiscal
2010. Following the closing, we integrated Day as a product line within our Digital Marketing segment for financial reporting
purposes.
See Note 2 of our Notes to Consolidated Financial Statements for further information regarding these acquisitions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of
the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical
experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially
from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and
estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.
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We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based
compensation, business combinations, goodwill impairment and income taxes have the greatest potential impact on our consolidated
financial statements. These areas are key components of our results of operations and are based on complex rules requiring us to
make judgments and estimates, so we consider these to be our critical accounting policies.
Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially
from actual results.
Revenue Recognition
Our revenue is derived from the licensing of perpetual and time-based software products, associated software maintenance
and support plans, non-software related hosting services, consulting services, training and technical support.
We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement
exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable.
Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have
a significant impact on the timing and amount of revenue we report.
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades,
maintenance and support, hosting services, and consulting.
For our software and software-related multiple element arrangements, we must: (1) determine whether and when each
element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered
products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence (“VSOE”),
and (4) allocate the total price among the various elements. VSOE of fair value is used to allocate a portion of the price to the
undelivered elements and the residual method is used to allocate the remaining portion to the delivered elements. Absent VSOE,
revenue is deferred until the earlier of the point at which VSOE of fair value exists for any undelivered element or until all elements
of the arrangement have been delivered. However, if the only undelivered element is maintenance and support, the entire
arrangement fee is recognized ratably over the performance period. Changes in assumptions or judgments or changes to the
elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a
particular period.
We determine VSOE for each element based on historical stand-alone sales to third parties or from the stated renewal rate
for the elements contained in the initial arrangement. In determining VSOE, we require that a substantial majority of the selling
prices for a product or service fall within a reasonably narrow pricing range.
We have established VSOE for our software maintenance and support services, custom software development services,
consulting services and training.
For multiple element arrangements containing our non-software services, we must: (1) determine whether and when each
element has been delivered; (2) determine fair value of each element using the selling price hierarchy of VSOE of fair value, thirdparty evidence (“TPE”) or best-estimated selling price (“BESP”), as applicable; and (3) allocate the total price among the various
elements based on the relative selling price method.
For multiple-element arrangements that contain software and non-software elements such as our hosted offerings, we
allocate revenue to software or software-related elements as a group and any non-software elements separately based on the selling
price hierarchy. We determine the selling price for each deliverable using VSOE of selling price, if it exists, or TPE of selling
price. If neither VSOE nor TPE of selling price exist for a deliverable, we use its BESP for that deliverable. Once revenue is
allocated to software or software-related elements as a group, it follows historic software accounting guidance. Revenue is then
recognized when the basic revenue recognition criteria are met for each element.
When we are unable to establish selling prices using VSOE or TPE, we use BESP in our allocation of arrangement
consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were
sold on a stand-alone basis. We are generally unable to establish VSOE or TPE for non-software elements and as such, we use
BESP.
We determine BESP for a product or service by considering multiple factors including, but not limited to major product
groupings, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices.
Significant pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable
and our price lists.
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We must estimate certain royalty revenue amounts due to the timing of securing information from our customers. While
we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, our
assumptions and judgments regarding future products and services as well as our estimates of royalty revenue could differ from
actual events, thus materially impacting our financial position and results of operations.
Product revenue is recognized when the above criteria are met. We reduce the revenue recognized for estimated future
returns, price protection and rebates at the time the related revenue is recorded. In determining our estimate for returns and in
accordance with our internal policy regarding global channel inventory which is used to determine the level of product held by
our distributors on which we have recognized revenue, we rely upon historical data, the estimated amount of product inventory
in our distribution channel, the rate at which our product sells through to the end user, product plans and other factors. Our estimated
provisions for returns can vary from what actually occurs. Product returns may be more or less than what was estimated. The
amount of inventory in the channel could be different than what is estimated. Our estimate of the rate of sell-through for product
in the channel could be different than what actually occurs. There could be a delay in the release of our products. These factors
and unanticipated changes in the economic and industry environment could make our return estimates differ from actual returns,
thus materially impacting our financial position and results of operations.
In the future, actual returns and price protection may materially exceed our estimates as unsold products in the distribution
channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new
platforms, product updates or competing products. While we believe we can make reliable estimates regarding these matters, these
estimates are inherently subjective. Accordingly, if our estimates change, our returns and price protection reserves would change,
which would impact the total net revenue we report.
We recognize revenues for hosting services that are based on a committed number of transactions ratably beginning on the
date the customer commences use of our services and continuing through the end of the customer term. Over-usage fees, and fees
billed based on the actual number of transactions from which we capture data, are billed in accordance with contract terms as these
fees are incurred. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue, depending
on whether the revenue recognition criteria have been met.
Our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures, such
as on hours incurred to date compared to total estimated hours to complete, with consideration given to output measures, such as
contract milestones, when applicable.
Stock-based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as
expense on a straight-line basis over the requisite service period, which is generally the vesting period.
In fiscal 2012, the Executive Compensation Committee of Adobe's Board of Directors eliminated the use of stock option
grants for all employees and stock option grants to non-employee directors were minimal. In lieu of stock options, we granted
restricted stock units as the primary form of equity awards to employees. Stock option grants prior to fiscal 2012 continue to vest
over the requisite service period and had a material impact to stock-based compensation cost for fiscal 2012 and are expected to
have a material impact to stock-based compensation cost until the majority of stock options are fully vested.
We currently use the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan
(“ESPP”) shares. This fair value is affected by our stock price as well as assumptions regarding a number of complex and subjective
variables. These variables include our expected stock price volatility over the expected term of the awards, the expected term of
the awards, the risk-free interest rate, estimated forfeitures and expected dividends.
We use a 24-month expected term, which approximates our offering period. We estimate the volatility of our common stock
by using implied volatility in market traded options. Our decision to use implied volatility was based upon the availability of
actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price
trends than historical volatility. We base the risk-free interest rate on zero-coupon yields implied from U.S. Treasury issues with
remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable
future and therefore use an expected dividend yield of zero in the option pricing model.
We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from
those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense
only for those awards that are expected to vest.
If we use different assumptions for estimating stock-based compensation expense for ESPP shares in future periods or if
actual forfeitures differ materially from our estimated forfeitures for both ESPP shares and existing stock option grants that continue
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to vest, the change in our stock-based compensation expense could materially affect our operating income, net income and net
income per share.
Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed,
assumed equity awards, as well as to in-process research and development based upon their estimated fair values at the acquisition
date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the
acquisition date with respect to intangible assets, deferred revenue obligations and equity assumed.
Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical
experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of
critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not
limited to:
•
future expected cash flows from software license sales, subscriptions, support agreements, consulting contracts and
acquired developed technologies and patents;
•
expected costs to develop the in-process research and development into commercially viable products and estimated
cash flows from the projects when completed;
•
the acquired company’s trade name and trademarks as well as assumptions about the period of time the acquired trade
name and trademarks will continue to be used in the combined company’s product portfolio; and
•
discount rates.
In connection with the purchase price allocations for our acquisitions, we estimate the fair value of the deferred revenue
obligations assumed. The estimated fair value of the support obligations is determined utilizing a cost build-up approach. The cost
build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin.
The estimated costs to fulfill the obligations are based on the historical costs related to fulfilling the obligations.
In connection with the purchase price allocations for our acquisitions, we estimate the fair value of the equity awards
assumed. The estimated fair value is determined utilizing a modified binomial option pricing model which assumes employees
exercise their stock options when the share price exceeds the strike price by a certain dollar threshold. If the acquired company
has significant historical data on their employee’s exercise behavior, then this threshold is determined based upon the acquired
company’s history. Otherwise, our historical exercise experience is used to determine the exercise threshold. Zero coupon yields
implied by U.S. Treasury issuances, implied volatility for our common stock and our historical forfeiture rate are other inputs to
the binomial model.
Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates
or actual results.
Goodwill Impairment
We complete our goodwill impairment test on an annual basis, during the second quarter of our fiscal year, or more frequently,
if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may
exist. In order to estimate the fair value of goodwill, we typically estimate future revenue, consider market factors and estimate
our future cash flows. Based on these key assumptions, judgments and estimates, we determine whether we need to record an
impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value. Assumptions, judgments
and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external
factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts.
Although we believe the assumptions, judgments and estimates we have made in the past have been reasonable and appropriate,
different assumptions, judgments and estimates could materially affect our reported financial results.
We completed our annual impairment test in the second quarter of fiscal 2012 and determined there was no impairment.
The results of our annual impairment test indicate there is no significant risk of future material goodwill impairment in any of our
reporting units.
Accounting for Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized
for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and
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liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates
to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance
to be recorded against a deferred tax asset.
Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax
laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic
tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could
be challenged by tax authorities. In addition, we are subject to the continual examination of our income tax returns by the IRS and
other domestic and foreign tax authorities, including a current examination by the IRS for our fiscal 2008 and 2009 tax returns.
These examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. Although we
believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the
resolution of the current and any future tax audits could significantly impact the amounts provided for income taxes in our
consolidated financial statements.
Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the
amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results
and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates
of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our
actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant
portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S.
income taxes on earnings from the U.S., we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the
subsidiaries' earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention
regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated,
the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.
Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to
discrete items and to earnings considered as permanently reinvested in foreign operations. Our future effective tax rates could be
unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in, or our interpretation
of, tax rules and regulations in the jurisdictions in which we do business, by unanticipated decreases in the amount of earnings in
countries with low statutory tax rates, by lapses of the availability of the U.S. research and development tax credit, or by changes
in the valuation of our deferred tax assets and liabilities.
Recent Accounting Pronouncements
There have been no new accounting pronouncements made effective during the year ended November 30, 2012, that are
of significance, or potential significance, to us.
Recent Accounting Pronouncements Not Yet Effective
There have been no new accounting pronouncements not yet effective that have significance, or potential significance, to
our consolidated financial statements.
RESULTS OF OPERATIONS
Overview of 2012
Effective in the first quarter of fiscal 2012, we modified our segments due to changes in how we operate our business. We
combined our Creative and Interactive Solutions segment with our Digital Media Solutions segment and our Knowledge Worker
segment, and named it Digital Media. We also renamed our Omniture segment to Digital Marketing and combined it with our
Enterprise segment. These changes reflect our focus on our two strategic growth opportunities. Our Print and Publishing segment,
which contains many of our mature products and solutions, continues to be reported as it was in fiscal 2011 and 2010. See Note
18 of our Notes to Consolidated Financial Statements for further segment and geographical information. Prior year information
below has been updated to reflect these changes.
For fiscal 2012, we reported solid financial results and executed against our two strategic growth areas, Digital Media and
Digital Marketing, while continuing to market and license a broad portfolio of products and solutions.
In May 2012, we launched Adobe Creative Suite 6 (“CS6”) which is at the center of Adobe Creative Cloud, our new
subscription-based offering for creating and publishing content and applications that was also released in May 2012. The launch
of CS6 included major updates to all of our core Creative Suite (“CS”) point products as well as four suite versions. Over time,
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we expect Creative Cloud to transform our business model and drive higher revenue growth through an expansion of our customer
base by acquiring new users through a lower cost of entry, as well as keeping existing customers current on our latest release.
We anticipate accelerated adoption of Creative Cloud in fiscal 2013, which we expect will cause our traditional perpetual
license revenue and, in turn, total net revenues in fiscal 2013, to decline. During this transition we do not anticipate a corresponding
decrease in expenses, which we believe will adversely affect our net income and operating margin in fiscal 2013. However, over
time we expect this business model transition will significantly increase our long-term revenue growth rate by (1) attracting new
users, (2) keeping our end user base current and (3) thereby driving higher average revenue per user. Additionally, our shift to a
subscription model will increase the amount of our recurring revenue that is ratably reported, driven by broader Creative Cloud
adoption over the next several years.
We plan to continue to offer the perpetual licensing model as we transition our customers to this new subscription-based
model.
To assist with the understanding of this transition and the related shift in revenue described above, we have introduced the
use of certain performance metrics which we will use to assess the health and trajectory of our overall Digital Media segment.
These metrics include the total number of paid, active subscribers and Annualized Recurring Revenue (“ARR”). We define
ARR as the sum of:
•
the number of paid, active subscribers, multiplied by the average subscription price paid per user per month, multiplied
by twelve months; plus,
•
twelve months of contract value of Enterprise Term License Agreements (“ETLAs”) where the revenue is ratably
recognized over the life of the contract.
In addition, we expect renewal rates associated with Creative Cloud, and potentially other subscription offerings, will
become key metrics used to measure their performance. Because the majority of Creative Cloud subscriptions have been annual
and the Creative Cloud launched in May 2012, we have not yet reached the first anniversary of these annual subscriptions and,
therefore, we anticipate that meaningful data regarding subscription renewal rates will first become available later in fiscal year
2013.
Financial Performance Summary for Fiscal 2012
•
We continue to derive the majority of our revenue from perpetual licenses. However, our subscription revenue, as a
percentage of total revenue, has increased to 15% in fiscal 2012 from approximately 11% and 10% in fiscal 2011 and
fiscal 2010, respectively, as we transition more of our business to a subscription-based model.
•
Our total revenue of $4.4 billion increased $187.4 million and $603.7 million, or 4% and 11%, from $4.2 billion and
$3.8 billion in fiscal 2011 and fiscal 2010, respectively. The increase is primarily due to the continued success of our
Adobe Marketing Cloud and Creative Suite family of products.
•
Cost of revenue and operating expenses of $3.2 billion increased by $106.5 million and $416.6 million, or 3% and
15%, from $3.1 billion and $2.8 billion in fiscal 2011 and 2010, respectively. These increases are primarily due to
increases in costs associated with compensation and related benefits driven by additional headcount.
•
Income before income taxes of $1.1 billion increased by $83.6 million and $175.6 million, or 8% and 19%, from $1.0
billion and $943.2 million in fiscal 2011 and 2010, respectively.
•
Net income of $832.8 million remained stable compared to fiscal 2011 and increased $58.1 million, or 7%, from $774.7
million in fiscal 2010.
•
Net cash flow from operations of $1.5 billion remained stable compared to fiscal 2011 and increased $386.6 million,
or 35%, from $1.1 billion in fiscal 2010 primarily due to increases in net income and deferred revenue and decreases
in trade receivables from increased cash collections.
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Revenue (dollars in millions)
Fiscal
2012
Product ........................................................................
Percentage of total revenue.......................................
Subscription ................................................................
Percentage of total revenue.......................................
Services and support ...................................................
Percentage of total revenue.......................................
Total revenue ............................................................
Fiscal
2011
Fiscal
2010
$ 3,342.8
$ 3,416.5
$ 3,159.2
76%
81%
83%
673.2
458.6
386.8
15%
11%
10%
387.7
341.2
254.0
9%
8%
7%
$ 4,403.7
$ 4,216.3
$ 3,800.0
% Change
2012-2011
% Change
2011-2010
(2)%
8%
47 %
19%
14 %
34%
4%
11%
As described in Note 18 of our Notes to Consolidated Financial Statements, we have the following segments: Digital Media,
Digital Marketing and Print and Publishing.
Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings including
our digital marketing services and Creative Cloud. We recognize subscription revenue ratably over the term of agreements with
our customers, beginning on the commencement of the service. We expect our subscription revenue will continue to increase as
a result of our investments in new SaaS and subscription models. We also expect this to increase the amount of recurring revenue
we generate as a percent of our total revenue. Of the $673.2 million, $458.6 million and $386.8 million in subscription revenue
for fiscal years 2012, 2011 and 2010, respectively, approximately $553.2 million, $429.2 million and $375.3 million, respectively,
is from our Digital Marketing segment, with the remaining amounts representing our Digital Media segment offerings.
Our services and support revenue is comprised of consulting, training and maintenance and support, primarily related to
the licensing of our enterprise, developer and platform products and the sale of our hosted digital marketing services. Our support
revenue also includes technical support and developer support to partners and developer organizations related to our desktop
products. Our maintenance and support offerings, which entitle customers to receive product upgrades and enhancements or
technical support, depending on the offering, are recognized ratably over the term of the arrangement.
Segments
In fiscal 2012, we categorized our products into the following segments:
•
Digital Media—Our Digital Media segment provides tools and solutions that enable individuals, small businesses and
enterprises to create, publish, promote and monetize their digital content anywhere. Our customers include traditional
content creators, web application developers and digital media professionals, as well as their management in marketing
departments and agencies, companies and publishers.
•
Digital Marketing—Our Digital Marketing segment provides solutions and services for how digital advertising and
marketing are created, managed, executed, measured and optimized. Our customers include digital marketers,
advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers.
•
Print and Publishing—Our Print and Publishing segment addresses market opportunities ranging from the diverse
publishing needs of technical and business publishing to our legacy type and OEM printing businesses.
Segment Information (dollars in millions)
Fiscal
2012
Digital Media ..............................................................
Percentage of total revenue.......................................
Digital Marketing ........................................................
Percentage of total revenue.......................................
Print and Publishing ....................................................
Percentage of total revenue.......................................
Total revenue...............................................................
Fiscal
2011
Fiscal
2010
$ 3,128.5
$ 3,088.6
$ 2,834.4
71%
73%
75%
1,058.4
909.4
739.4
24%
22%
19%
216.8
218.3
226.2
5%
5%
6%
$ 4,403.7
$ 4,216.3
$ 3,800.0
61
% Change
2012-2011
% Change
2011-2010
1%
9%
16 %
23 %
(1)%
(3)%
4%
11 %
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Fiscal 2012 Revenue Compared to Fiscal 2011 Revenue
Digital Media
Revenue from Digital Media remained relatively stable during fiscal 2012 as compared to fiscal 2011, due to solid demand
for our Acrobat family of products as well as the continued momentum of the CS6 launch in the second quarter of fiscal 2012,
offset by better than expected growth associated with our subscription offerings.
Revenue related to our creative professional products, which included our Creative Suite editions and CS point products
as well as the recently released Creative Cloud, decreased slightly during fiscal 2012 as compared to fiscal 2011 due to higher
than expected customer adoption of Creative Cloud and point product subscriptions. We anticipate accelerated adoption of Creative
Cloud and point product subscriptions, for which revenue is recognized over time, and that this adoption will cause our traditional
perpetual license revenue to decline. The decreases in revenue associated with our creative professional products were offset in
part by growth associated with the May 2012 release of new Photoshop point products for which the previous release occurred in
fiscal 2010.
Revenue associated with our other creative products increased during fiscal 2012 as compared to fiscal 2011 primarily due
to increases associated with third-party toolbar distribution via Flash Player downloads as well as continued demand related to
the May 2012 release of Adobe Lightroom 4.
For our creative offerings, the total number of perpetual units licensed remained relatively stable while the number of
subscription units licensed increased during fiscal 2012 as compared to fiscal 2011. Unit average selling prices, excluding
subscriptions, decreased during fiscal 2012 as compared to fiscal 2011.
Document Services revenue, which includes our Acrobat product family, also increased during fiscal 2012 as compared to
fiscal 2011 primarily due to increased Document Exchange Services revenue including revenue generated from our EchoSign
eSignatures service and the launch of Adobe Acrobat XI in the fourth quarter of fiscal 2012.
Within Document Services, excluding large enterprise license agreement deals, the number of units licensed remained
relatively stable while the unit average selling prices increased for our Acrobat offerings for fiscal 2012 as compared to fiscal
2011.
Digital Marketing
Revenue from Digital Marketing increased $149.0 million, or 16% during fiscal 2012 when compared to fiscal 2011,
primarily due to continued growth of our Adobe Marketing Cloud, which increased 35% year-over-year and includes our Adobe
CQ WEM offerings and revenue generated from products associated with our recent acquisition of Efficient Frontier. Also
contributing to the growth in revenue was our Adobe Connect hosted offering. As expected, increases in these areas were offset
in part by a decrease in revenue associated with Adobe LiveCycle product offerings as we continue to shift our focus to our Adobe
Marketing Cloud including our WEM solution.
Print and Publishing
Revenue from Print and Publishing remained relatively stable during fiscal 2012 as compared to fiscal 2011 primarily due
to decreases in legacy product revenue, offset by increases in fees received for consulting services and royalties related to PostScript
products.
Fiscal 2011 Revenue Compared to Fiscal 2010 Revenue
Digital Media
Revenue from Digital Media increased $254.2 million, or 9%, during fiscal 2011 as compared to fiscal 2010. The yearover-year increase in revenue was driven by continued licensing of the CS5 product family.
Revenue related to our creative professional products, which included our Creative Suite editions and CS point products,
increased during fiscal 2011 as compared to fiscal 2010 primarily due to an increase in suite revenue associated with our Master
Collection, and to a lesser extent, our design and video authoring suites. Also contributing to the growth was an increase in revenue
associated with our Illustrator and InDesign point products.
Revenue associated with our other creative products increased during fiscal 2011 as compared to fiscal 2010 primarily due
to increases associated with third-party toolbar distribution via Adobe Reader and Flash Player downloads as well as our Digital
Publishing solution which was made available to all enterprise customers during fiscal 2011.
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For our creative offerings, both the total number of units licensed and unit average selling prices remained relatively stable
during fiscal 2011 as compared to fiscal 2010.
Document Services revenue increased during fiscal 2011 as compared to fiscal 2010. We attribute this success to strong
adoption of our Acrobat X product, which was released in the fourth quarter of fiscal 2010.
During fiscal 2011 as compared to fiscal 2010, unit average selling prices for Document Services increased and the number
of units licensed remained relatively stable.
Digital Marketing
Revenue from Digital Marketing increased $170.0 million, or 23%, during fiscal 2011 as compared to fiscal 2010. The
increase was primarily due to continued customer adoption of our Adobe Marketing Cloud, which includes our WEM offerings
resulting from the acquisition of Day, which closed late in the fourth quarter of fiscal 2010.
Print and Publishing
Revenue from Print and Publishing decreased $7.9 million, or 3%, during fiscal 2011 as compared to fiscal 2010. The
decrease was primarily due to lower Shockwave revenue and the release of ColdFusion 9 at the end of fiscal 2009 for which a
comparable release did not occur in the current year. Also contributing to the decline was a one-time large deal in Adobe Captivate
and our Tech Communications products during fiscal 2010 that did not recur in fiscal 2011.
Geographical Information (dollars in millions)
Fiscal
2012
Americas .....................................................................
Percentage of total revenue.......................................
EMEA..........................................................................
Percentage of total revenue.......................................
APAC ..........................................................................
Percentage of total revenue.......................................
Total revenue...............................................................
Fiscal
2011
Fiscal
2010
$ 2,196.4
$ 2,044.6
$ 1,835.3
50%
49%
48%
1,294.6
1,317.4
1,191.9
29%
31%
32%
912.7
854.3
772.8
21%
20%
20%
$ 4,403.7
$ 4,216.3
$ 3,800.0
% Change
2012-2011
% Change
2011-2010
7%
11%
(2)%
11%
7%
11%
4%
11%
Fiscal 2012 Revenue by Geography Compared to Fiscal 2011 Revenue by Geography
Overall revenue for fiscal 2012 increased in the Americas and APAC and declined slightly in EMEA when compared to
fiscal 2011. Revenue in the Americas increased during fiscal 2012 primarily due to revenue increases in Digital Media and Digital
Marketing, offset slightly by a decline in Print and Publishing revenue. Despite the launch of CS6 in May 2012, the current
economic conditions in Europe and the weakening of the Euro and British Pound against the U.S. Dollar caused revenue in EMEA
to decline slightly during fiscal 2012 compared with fiscal 2011. Revenue in APAC increased across all reportable segments during
fiscal 2012 as compared with fiscal 2011. Within each geographical region, the fluctuations in revenue by reportable segment
were attributable to the factors noted in the segment information above.
Fiscal 2011 Revenue by Geography Compared to Fiscal 2010 Revenue by Geography
Overall revenue for fiscal 2011 increased in each of the geographic regions when compared to fiscal 2010. Within each
geographic region, every reportable segment contributed to the increase in revenue with the exception of Print and Publishing,
which experienced decreases in EMEA and APAC. The increase in revenue during fiscal 2011 as compared to fiscal 2010 in the
Americas, EMEA and APAC was attributable to the factors noted in the segment information above.
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Included in the overall increase in revenue for fiscal 2012 and fiscal 2011 were impacts associated with foreign currency
as shown below. Our currency hedging program is used to mitigate a portion of the foreign currency impact to revenue.
Fiscal
2012
(in millions)
Revenue impact:
Fiscal
2011
Increase/(Decrease)
EMEA:
Euro ................................................................................................................................. $
British Pound ...................................................................................................................
Other currencies...............................................................................................................
Total EMEA ..................................................................................................................
Japanese Yen.........................................................................................................................
Other currencies ...................................................................................................................
Total revenue impact.....................................................................................................
(46.9) $
(1.8)
(1.1)
(49.8)
6.0
1.5
(42.3)
16.4
6.5
2.9
25.8
38.5
14.6
78.9
23.4
7.3
3.6
0.2
Hedging impact:
EMEA...................................................................................................................................
Japanese Yen.........................................................................................................................
Total hedging impact.....................................................................................................
Total impact.......................................................................................................................... $
30.7
(11.6) $
3.8
82.7
During fiscal 2012, the U.S. Dollar strengthened against the Euro, British Pound and other EMEA currencies causing
revenue in EMEA measured in U.S. Dollar equivalents to decrease compared with the same reporting period last year. This decrease
was offset in part by the favorable impact to revenue measured in Japanese Yen and other Asian currencies as the U.S. Dollar
weakened against these currencies. Our EMEA and Yen currency hedging programs resulted in hedging gains during fiscal 2012
as noted in the table above.
During fiscal 2011, the Euro, British Pound and other EMEA currencies were favorably impacted as the U.S. Dollar weakened
against these currencies causing revenue in EMEA measured in average U.S. Dollar equivalents to increase compared to fiscal
2010. Revenue measured in both the Japanese Yen and other currencies also were favorably impacted as the U.S. Dollar weakened
against these currencies. During fiscal 2011, our EMEA and Japanese Yen currency hedging programs resulted in hedging gains
as noted above.
See Note 18 of our Notes to Consolidated Financial Statements for further geographic information.
Product Backlog
The actual amount of product backlog at any particular time may not be a meaningful indicator of future business prospects.
Shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending credit
review and those not shipped due to the application of our global inventory policy. We had minimal shippable backlog at the end
of the fourth quarter of fiscal 2012. We expect that our shippable backlog will continue to be insignificant in future periods.
Cost of Revenue (dollars in millions)
Fiscal
2012
Product ........................................................................
Percentage of total revenue.......................................
Subscription ................................................................
Percentage of total revenue.......................................
Services and support ...................................................
Percentage of total revenue.......................................
Total cost of revenue...................................................
$
$
121.7
$
3%
219.1
5%
143.0
3%
483.8
$
64
Fiscal
2011
125.7
$
3%
194.0
5%
118.2
3%
437.9
$
Fiscal
2010
127.5
3%
195.6
5%
80.4
2%
403.5
% Change
2012-2011
% Change
2011-2010
(3)%
(1)%
13 %
(1)%
21 %
47 %
10 %
9%
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Product
Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization
related to localization costs, purchased intangibles and acquired rights to use technology and the costs associated with the
manufacturing of our products.
Cost of product revenue decreased due to the following:
% Change
2012-2011
Cost of sales............................................................................................................................
Excess and obsolete inventory................................................................................................
Amortization of purchased intangibles...................................................................................
Royalty cost ............................................................................................................................
Various individually insignificant items.................................................................................
Total change .........................................................................................................................
(6)%
2
(1)
—
2
(3)%
% Change
2011-2010
—%
—
6
(3)
(4)
(1)%
Cost of product revenue decreased during fiscal 2012 as compared to fiscal 2011 primarily due to decrease in cost of sales
and amortization of purchase intangibles, offset by increases in excess and obsolete inventory. Cost of sales decreased primarily
due to a decrease in packaging costs associated with our CS6 products. Amortization of purchased intangibles decreased primarily
due to certain intangible assets purchased through our acquisitions in prior years that were fully amortized in fiscal 2012. Excess
and obsolete inventory increased primarily due to increased reserve requirements for Adobe Creative Suite 5 and Adobe Creative
Suite 5.5 products necessitated by the launch of CS6 in the second quarter of fiscal 2012.
Cost of product revenue decreased during fiscal 2011 as compared to fiscal 2010 primarily due to decrease in royalty costs,
offset by increase in amortization of purchase intangibles. Royalty costs decreased primarily due to a decrease in obligations to
certain key vendors. Amortization of purchased intangibles increased primarily due to amortization expense associated with
intangible assets purchased through acquisitions during fiscal 2011 and our Day acquisition in the fourth quarter of 2010.
Subscription
Cost of subscription revenue consists of expenses related to operating our network infrastructure, including depreciation
expenses and operating lease payments associated with computer equipment, data center costs, salaries and related expenses of
network operations, implementation, account management and technical support personnel, amortization of intangible assets and
allocated overhead. We enter into contracts with third-parties for the use of their data center facilities and our data center costs
largely consist of the amounts we pay to these third-parties for rack space, power and similar items.
Cost of subscription revenue increased in fiscal 2012 due to the following:
% Change
2012-2011
Amortization of purchased intangibles ................................................................................................................
Hosted server costs...............................................................................................................................................
Total change.......................................................................................................................................................
6%
7
13%
Cost of subscription revenue increased during fiscal 2012 as compared to fiscal 2011 primarily due to increased amortization
of purchased intangibles and hosted server costs. Amortization of purchased intangibles increased primarily due to increased
amortization of intangible assets associated with our acquisition of Efficient Frontier in the first quarter of fiscal 2012. Hosted
server costs increased primarily due to increases in compensation and related benefits driven by additional headcount and hosting
expenses associated with the launch of our Creative Cloud services in the second quarter of fiscal 2012. Also contributing to the
increase in hosted server costs is the increase in depreciation expense from higher capital expenditures in prior years and data
center costs related to higher transaction volumes in our Adobe Marketing Cloud services and Creative Cloud.
Cost of subscription revenue remained relatively stable during fiscal 2011 as compared to fiscal 2010 primarily due to
decreased amortization of purchased intangibles resulting from certain intangible assets purchased through our acquisition of
Omniture that were fully amortized in fiscal 2011. This was offset in part by increases in costs associated with compensation and
related benefits driven by additional headcount and increases in data center costs related to higher transaction volumes in our
Adobe Marketing Cloud services.
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Table of Contents
Services and Support
Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to
provide consulting services, training and product support.
Cost of services and support revenue increased during fiscal 2012 as compared to fiscal 2011 and fiscal 2011 as compared
to fiscal 2010, primarily due to increases in costs associated with compensation and related benefits driven by additional headcount,
including headcount from our acquisition of Efficient Frontier.
Operating Expenses (dollars in millions)
Fiscal
2012
Fiscal
2011
Fiscal
2010
% Change
2012-2011
% Change
2011-2010
Research and development..........................................
Percentage of total revenue.......................................
Sales and marketing ....................................................
Percentage of total revenue.......................................
General and administrative .........................................
Percentage of total revenue.......................................
Restructuring and other related charges (credits)........
Percentage of total revenue.......................................
$
742.8
$
738.1
$
680.3
17%
18%
18%
1,516.1
1,385.8
1,244.2
34%
33%
33%
435.0
414.6
383.5
10%
10%
10%
(2.9)
97.8
23.3
—%
2%
1%
1%
8%
9%
11 %
5%
8%
*
*
Amortization of purchased intangibles .......................
Percentage of total revenue.......................................
Total operating expenses.............................................
48.7
42.8
72.1
1%
1%
2%
$ 2,739.7
$ 2,679.1
$ 2,403.4
14%
(41)%
2%
11 %
_________________________________________
(*)
Percentage is greater than 100%.
Research and Development
Research and development expenses consist primarily of salary and benefit expenses for software developers, contracted
development efforts, related facilities costs and expenses associated with computer equipment used in software development.
Research and development expenses remained relatively stable during fiscal 2012 as compared to fiscal 2011. The increase in
research and development expenses during fiscal 2011 as compared to fiscal 2010 was primarily driven by higher employee
compensation associated with headcount growth.
We believe that investments in research and development, including the recruiting and hiring of software developers, are
critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced
products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in
the development of our application, tool and service offerings.
Sales and Marketing
Sales and marketing expenses consist primarily of salary and benefit expenses, sales commissions, travel expenses and
related facilities costs for our sales, marketing, order management and global supply chain management personnel. Sales and
marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows, public
relations and other market development programs.
Sales and marketing expenses increased due to the following:
% Change
2012-2011
Compensation and related benefits associated with headcount..............................................
Marketing spending related to product launches and overall marketing efforts to further
increase revenue...................................................................................................................
Compensation associated with incentive compensation and stock-based compensation.......
Various individually insignificant items.................................................................................
Total change .........................................................................................................................
66
% Change
2011-2010
2%
5%
2
3
2
9%
3
1
2
11%
Table of Contents
General and Administrative
General and administrative expenses consist primarily of compensation and benefit expenses, travel expenses and related
facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and
administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with computer
equipment and software used in the administration of the business, charitable contributions and various forms of insurance.
General and administrative expenses increased due to the following:
% Change
2012-2011
Compensation and related benefits associated with headcount growth..................................
Professional and consulting fees.............................................................................................
Compensation associated with incentive compensation and stock-based compensation.......
Various individually insignificant items.................................................................................
Total change .........................................................................................................................
4%
(3)
1
3
5%
% Change
2011-2010
3%
5
2
(2)
8%
Professional and consulting fees decreased during fiscal 2012 as compared to fiscal 2011 primarily due to decreased litigation
expense. Professional and consulting fees increased during fiscal 2011 as compared to fiscal 2010 primarily due to increase in
fees for various technology projects and increased litigation expense.
Restructuring and Other Related Charges (Credits)
During the past several years, we have initiated various restructuring plans. During fiscal 2012, in connection with our
Fiscal 2011 Restructuring Plan and Other Restructuring Plans, we recorded $17.4 million associated with termination benefits and
closing redundant facilities. We also recorded $20.3 million in net favorable employee termination and facility related adjustments
for changes in previous estimates during the fiscal year. During fiscal 2011, in connection with our 2011 Restructuring Plan and
Other Restructuring Plans, we recorded $85.6 million associated with termination benefits and closing redundant facilities as well
as $12.7 million related to the write-off of certain assets that were no longer useful to the company based on changes in our
business. We also recorded minor favorable adjustments for changes in previous estimates. During 2010, in connection with our
Fiscal 2009 Restructuring Plan we recorded $23.3 million associated with termination benefits and closing redundant facilities
which is net of minor favorable adjustments for changes in previous estimates.
See Note 10 of our Notes to Consolidated Financial Statements for further information regarding our restructuring plans.
Amortization of Purchased Intangibles
During the last several years, we have completed a number of business combinations and asset acquisitions including
Macromedia in fiscal 2006, Omniture in fiscal 2009, Day in fiscal 2010, eight smaller acquisitions in fiscal 2011 and Efficient
Frontier in fiscal 2012. As a result of these acquisitions, we purchased intangible assets that are being amortized over their estimated
useful lives ranging from one to twelve years.
Amortization expense increased 14% during fiscal 2012 as compared to fiscal 2011 primarily due to amortization expense
associated with intangible assets purchased through our smaller acquisitions in fiscal 2011 and Efficient Frontier in fiscal 2012.
Amortization expense decreased 41% during fiscal 2011 as compared to fiscal 2010 primarily due to amortization expense
associated with certain intangible assets purchased through our acquisition of Macromedia that were fully amortized at the end
of fiscal 2010. This decrease was offset in part by an increase in amortization expense as a result of intangible assets purchased
through our acquisition of Day in the fourth quarter of fiscal 2010 as well as an increase in intangible assets purchased through
our fiscal 2011 acquisitions.
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Table of Contents
Non-Operating Income (Expense), Net (dollars in millions)
Fiscal
2012
Interest and other income (expense), net.....................
Percentage of total revenue.......................................
Interest expense...........................................................
Percentage of total revenue.......................................
Investment gains (losses), net .....................................
Percentage of total revenue.......................................
Total non-operating income (expense), net.................
$
$
(3.4)
Fiscal
2011
$
*
(67.5)
(2)%
9.5
*
(61.4)
$
(3.0)
Fiscal
2010
$
*
(67.0)
(2)%
5.9
*
(64.1)
$
13.1
*
(56.9)
(1)%
(6.1)
*
(49.9)
% Change
2012-2011
% Change
2011-2010
13 %
(123)%
1%
18 %
61 %
(197)%
(4)%
28 %
_________________________________________
(*)
Percentage is not meaningful.
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed
income investments. Interest and other income (expense), net also includes foreign exchange gains and losses, including those
from hedging revenue transactions primarily denominated in Euro and Yen currencies, and gains and losses on fixed income
investments.
Interest and other income (expense), net increased in net expense in fiscal 2012 as compared to fiscal 2011 primarily due
to lower average interest rates on our investments.
Interest and other income (expense), net changed from net income in fiscal 2010 to net expense in fiscal 2011 primarily
due to a gain of $20.8 million recorded in fiscal 2010 associated with a forward contract purchased to hedge our economic exposure
related to our acquisition of Day that did not recur during fiscal 2011, as well as increased cash flow hedging costs in fiscal 2011.
The increase in net expense in fiscal 2011 was partially offset by increased interest income of $2.4 million due to higher average
interest rates on our investments.
Interest Expense
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0
million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). On
February 1, 2010, we repaid the outstanding balance under our then existing $1.0 billion credit facility with a portion of the
proceeds from the Notes.
Interest expense remained relatively stable during fiscal 2012 as compared to fiscal 2011. The increase in interest expense
during fiscal 2011 as compared to fiscal 2010 was primarily due to interest associated with higher borrowings resulting from the
issuance of the Notes.
Investment Gains (Losses), Net
Investment gains (losses), net consists principally of realized gains or losses from the sale of marketable equity investments,
other-than-temporary declines in the value of marketable and non-marketable equity securities and unrealized holding gains and
losses associated with our deferred compensation plan assets (classified as trading securities) and gains and losses associated with
our direct and indirect investments in privately held companies.
Investment gains (losses), net fluctuated due to the following (in millions):
Fiscal
2012
Net gains (losses) related to our direct and indirect investments in privately
held companies .....................................................................................................
Gains from sale of marketable equity securities.......................................................
Write-downs due to other-than-temporary declines in value of our
marketable equity securities..................................................................................
Net gains related to our trading securities ................................................................
Total investment gains (losses), net..........................................................................
68
$
$
(0.2) $
8.2
(0.1)
1.6
9.5 $
Fiscal
2011
Fiscal
2010
$
(11.3)
4.0
(0.2)
—
5.9 $
—
1.2
(6.1)
5.3
0.8
Table of Contents
During fiscal 2012, total investment gains (losses), net improved primarily due to an increase in net realized gains from the
sale of marketable equity securities. This was offset in part by a decrease in realized gains related to our direct investments in
privately held companies in fiscal 2011 that did not recur during fiscal 2012.
During fiscal 2011, total investment gains (losses), net improved to net gains primarily due to unrealized losses related to
our indirect investments in privately held companies in fiscal 2010 that did not recur during fiscal 2011. This was offset in part
by a decrease in net realized gains from the sale of marketable equity securities during fiscal 2011 due to less sales of these
investments.
Provision for Income Taxes (dollars in millions)
Fiscal
2012
Provision .....................................................................
Percentage of total revenue.......................................
Effective tax rate.......................................................
$
286.0
$
6%
26%
Fiscal
2011
202.4
$
5%
20%
Fiscal
2010
168.5
4%
18%
% Change
2012-2011
41%
% Change
2011-2010
20%
Our effective tax rate increased by approximately six percentage points during fiscal 2012 as compared to fiscal 2011. In
fiscal 2011, the increase was primarily related to the expiration of the U.S. research and development credit, as well as tax benefits
associated with a favorable state income tax ruling and tax costs associated with licensing acquired company assets to Adobe's
trading companies.
Our effective tax rate increased by approximately two percentage points during fiscal 2011 as compared to fiscal 2010. The
increase was primarily due to tax costs of licensing acquired company assets to Adobe's trading companies. These costs were
partially offset by tax benefits related to a favorable state income tax ruling and the reinstatement of the federal research and
development tax credit.
In January 2013, the United States Congress passed an extension of the federal research and development tax credit through
December 31, 2013. As a result, we expect that our income tax provision for the first quarter of fiscal 2013 will include a discrete
tax benefit which will reduce our effective tax rate for the quarter and to a lesser extent the effective annual tax rate.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant
portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S.
income taxes on earnings from the U.S., we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the
subsidiaries' earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention
regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated,
the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. Currently, there are a significant
amount of foreign earnings upon which U.S. income taxes have not been provided.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at November 30, 2012 was $160.5 million, exclusive of interest and
penalties. If the total unrecognized tax benefits at November 30, 2012 were recognized in the future, $147.6 million of unrecognized
tax benefits would decrease the effective tax rate, which is net of an estimated $12.9 million federal benefit related to deducting
certain payments on future state tax returns.
As of November 30, 2012, the combined amount of accrued interest and penalties related to tax positions taken on our tax
returns was approximately $12.5 million. This amount is included in non-current income taxes payable.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments
that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of
current and non-current assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain
audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties
described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging
from $0 to approximately $5 million.
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Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
This data should be read in conjunction with our Consolidated Statements of Cash Flows.
As of
(in millions)
November 30, 2012
Cash and cash equivalents ..................................................................................................
Short-term investments.......................................................................................................
Working capital...................................................................................................................
Stockholders’ equity ...........................................................................................................
$
$
$
$
1,425.1
2,113.3
3,059.6
6,665.2
December 2, 2011
$
$
$
$
989.5
1,922.2
2,520.7
5,783.1
A summary of our cash flows is as follows:
Fiscal
2012
(in millions)
Net cash provided by operating activities ................................................... $
Net cash used for investing activities ..........................................................
Net cash used for financing activities..........................................................
Effect of foreign currency exchange rates on cash and cash equivalents....
Net increase (decrease) in cash and cash equivalents ................................. $
1,499.6 $
(834.7)
(234.7)
5.4
435.6 $
Fiscal
2011
1,543.3 $
(757.4)
(550.4)
4.1
239.6 $
Fiscal
2010
1,113.0
(1,159.3)
(215.3)
12.0
(249.6)
Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses, general operating
expenses including marketing, travel and office rent, and cost of revenue. Other sources of cash are proceeds from the exercise
of employee options and participation in the ESPP. Other uses of cash include our stock repurchase program, which is described
below, business acquisitions and purchases of property and equipment.
Cash Flows from Operating Activities
For fiscal 2012, net cash provided by operating activities of $1.5 billion was primarily comprised of net income plus the
net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in deferred
revenue and decreases in trade receivables. Deferred revenue increased primarily due to an increase in activity for both upgrade
plans with support and site and term licenses largely associated with our Digital Media and Digital Marketing enterprise license
agreements. The decrease in trade receivables is primarily related to an increase in revenue linearity and improved collections in
our Digital Marketing portfolio offset in part by higher revenue levels due to the CS6 product release which occurred late in the
second quarter of fiscal 2012.
The primary working capital uses of cash were decreases in accrued restructuring and trade payables. Decreases in accrued
restructuring primarily related to payments and adjustments for employee terminations and facility exit costs associated with the
Fiscal 2011 Restructuring Plan, a significant portion of which were paid and adjusted in the first and second quarters of fiscal
2012. Trade payables decreased primarily due to the timing of payments as a greater number of invoices were paid prior to the
fiscal year end in fiscal 2012 as compared to fiscal 2011.
For fiscal 2011, net cash provided by operating activities of $1.5 billion was primarily comprised of net income plus the
net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in deferred
revenue and accrued restructuring. Increases in deferred revenue related primarily to an overall increase in billing activity for
maintenance and support/upgrade plans, hosted and professional services and site and term licenses. Accrued restructuring increased
primarily due to recognition of liabilities related to employee termination and facility exit costs associated with the Fiscal 2011
Restructuring Plan which occurred in the fourth quarter of fiscal 2011 for which a majority was paid and adjusted in the first and
second quarters of fiscal 2012.
The primary working capital uses of cash for fiscal 2011 were increases in trade receivables coupled with decreases in
accrued expenses and taxes payable. Trade receivables increased primarily as a result of overall higher sales levels and billing
occurring during the latter half of the fourth quarter of fiscal 2011, offset in part by an increased rate of collection for Digital
Marketing services. Decreases in accrued expenses were primarily related to lower accrued bonus levels in fiscal 2011, coupled
with payment of our second and third semi-annual interest payments associated with our Notes totaling $62.3 million. The resulting
reduction in accrued interest was partially offset by additional interest accruals made during the period. Taxes payable decreased
primarily due to the resolution of a Canadian Tax audit offset in part by quarterly increases to the tax provision in excess of taxes
paid.
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Table of Contents
For fiscal 2010, net cash provided by operating activities of $1.1 billion was primarily comprised of net income plus the
net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in accrued
expenses and deferred revenue. Accrued expenses increased primarily due to amounts due under our fiscal 2010 annual incentive
plan and interest on our Notes, both of which were paid in the first quarter of fiscal 2011. During fiscal 2010, we made our first
semi-annual interest payment associated with our Notes totaling $31.1 million. The resulting reduction in accrued interest was
partially offset by additional interest accruals made during the period. Increases in deferred revenue related primarily to activity
from our acquisition of Omniture, the related renewal of calendar-year based contracts in addition to increases in maintenance
and support orders and royalty revenue deferrals related to changes in customer billing terms.
The primary working capital uses of cash for fiscal 2010 were increases in trade receivables, prepaid expenses and other
current assets as well as decreases in taxes payable, accrued restructuring and trade payables. Trade receivables increased as a
result of products shipped and billed during the latter half of the fourth quarter of fiscal 2010 as a result of the launch of Acrobat
X and slower receivable payments pertaining to Omniture services. Increases in prepaid expenses and other current assets related
primarily to higher valuations on our cash flow and balance sheet hedges due to the strengthening of the U.S. dollar. Income taxes
payable decreased primarily due to payments of approximately $200.0 million for tax liabilities associated with the repatriation
of undistributed foreign earnings as well as a $20.0 million settlement of an IRS exam in the fourth quarter of fiscal 2010. Accrued
restructuring decreased primarily due to payments made related to the fiscal 2009 restructuring plan that was initiated in the fourth
quarter of fiscal 2009 in addition to adjustments made to previously recorded estimates, offset in part by new charges.
Cash Flows from Investing Activities
For fiscal 2012, net cash used for investing activities of $834.7 million was primarily due to our acquisition of Efficient
Frontier in the first quarter of fiscal 2012. Other uses of cash during fiscal 2012 represented purchases of short-term investments
and property and equipment, offset in part by sales and maturities of short-term investments. See Note 2 of our Notes to the
Consolidated Financial Statements for further information regarding our acquisition of Efficient Frontier.
For fiscal 2011, net cash used for investing activities of $757.4 million was primarily due to purchases of short-term
investments and multiple business acquisitions, offset in part by maturities and sales of short-term investments. Other uses of cash
during fiscal 2011 represented purchases of property, plant and equipment and long-term investments, intangibles and other assets.
For fiscal 2010, net cash used for investing activities of $1.2 billion was primarily due to purchases of short-term investments
and the acquisition of Day, offset in part by maturities and sales of short-term investments. Other uses of cash during fiscal 2010
represented purchases of property and equipment and long-term investments and other assets. These uses of cash were offset in
part by proceeds from the sale of equipment under our sale lease-back transaction and the sale of long-term investments. See Note
16 of our Notes to Consolidated Financial Statements for information regarding our sale lease-back transaction.
Cash Flows from Financing Activities
For fiscal 2012 and fiscal 2011, net cash used for financing activities of $234.7 million and $550.4 million, respectively,
was primarily due to treasury stock repurchases offset in part by proceeds from our treasury stock issuances. See the section titled
“Stock Repurchase Program” discussed below.
For fiscal 2010, the primary cash flows from financing activities represented the issuance of $600.0 million of 3.25% senior
notes due February 1, 2015 and $900.0 million of 4.75% senior notes due February 1, 2020. On February 1, 2010, we paid the
outstanding balance on our then existing credit facility with a portion of the funds from our Notes. Other uses of cash during fiscal
2010 were for treasury stock repurchases offset in part by proceeds from our treasury stock issuances.
We expect to continue our investing activities, including short-term and long-term investments, venture capital, facilities
expansion and purchases of computer systems for research and development, sales and marketing, product support and
administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to
strategically acquire companies, products or technologies that are complementary to our business.
Restructuring
During the past several years, we have initiated various restructuring plans. During fiscal 2012 the following five restructuring
plans, two of which were the result of large acquisitions, were still active:
•
•
•
•
•
Fiscal 2011 Restructuring Plan
Fiscal 2009 Restructuring Plan
Fiscal 2008 Restructuring Plan
Omniture Restructuring Plan
Macromedia Restructuring Plan
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As of November 30, 2012, we have accrued total restructuring charges of approximately $21.6 million of which
approximately $2.3 million relates to ongoing termination benefits and contract terminations that are expected to be paid during
fiscal 2013. The remaining accrued restructuring charges of $19.3 million relate to the cost of closing redundant facilities and are
expected to be paid under contract through fiscal 2021, approximately 69% of which will be paid through 2015. During fiscal
2012, we made payments related to the above restructuring plans totaling approximately $63.1 million which consisted of
approximately $50.5 million and $12.6 million in payments related to termination benefits and contract terminations and the
closing of redundant facilities, respectively.
As of December 2, 2011, we accrued total restructuring charges of approximately $88.4 million of which approximately
$74.4 million related to ongoing termination benefits and contract terminations which were paid or adjusted during fiscal 2012
with the remaining $14.0 million related to the cost of closing redundant facilities. During fiscal 2011, we made payments related
to the above restructuring plans totaling approximately $13.1 million which consisted of approximately $6.8 million and $6.3
million in payments related to termination benefits and contract terminations and the closing of redundant facilities, respectively.
We believe that our existing cash and cash equivalents, short-term investments and cash generated from operations will be
sufficient to meet the cash outlays for the restructuring actions described above.
See Note 10 of our Notes to Consolidated Financial Statements for additional information regarding our restructuring
plans.
Other Liquidity and Capital Resources Considerations
Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2013 due to changes in our planned
cash outlay, including changes in incremental costs such as direct and integration costs related to our business acquisitions. Our
cash and investments totaled $3.5 billion as of November 30, 2012. Of this amount, approximately 83% was held by our foreign
subsidiaries and subject to material repatriation tax effects. Our intent is to permanently reinvest a significant portion of our
earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations
to fund our domestic operations. In the event funds from foreign operations are needed to fund operations in the United States and
if U.S. tax has not already been previously provided, we would provide for and pay additional U.S. taxes in connection with
repatriating these funds.
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to the risks detailed
in Part I, Item 1A titled “Risk Factors”. However, based on our current business plan and revenue prospects, we believe that our
existing balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working
capital and operating resource expenditure requirements for the next twelve months.
As of November 30, 2012, the amount outstanding under our senior notes was $1.5 billion. On March 2, 2012, we entered
into a five-year $1.0 billion senior unsecured revolving credit agreement (the “Credit Agreement”), providing for loans to us and
certain of our subsidiaries. As of November 30, 2012, there were no outstanding borrowings under this Credit Agreement and the
entire $1.0 billion credit line remains available for borrowing. In connection with entering into the Credit Agreement, we terminated
and paid off all obligations under our previous credit agreement dated as of February 16, 2007.
We use professional investment management firms to manage a large portion of our invested cash. External investment
firms managed, on average, 74% of our consolidated invested balances during fiscal 2012. The fixed income portfolio is primarily
invested in corporate bonds and commercial paper, foreign government securities, money market mutual funds and repurchase
agreements, municipal securities, U.S. agency securities and U.S. Treasury securities.
Stock Repurchase Program
During the third quarter of fiscal 2010, our Board of Directors approved an amendment to our stock repurchase program
authorized in April 2007 from a non-expiring share-based authority to a time-constrained dollar-based authority. As part of this
amendment, the Board of Directors granted authority to repurchase up to $1.6 billion in common stock through the end of fiscal
2012. During the second quarter of fiscal 2012, we exhausted our $1.6 billion time-constrained dollar-based authority granted by
our Board of Directors in fiscal 2010. In April 2012, the Board of Directors approved a new stock repurchase program granting
authority to repurchase up to $2.0 billion in common stock through the end of fiscal 2015. The new stock repurchase program
approved by our Board of Directors is similar to our previous $1.6 billion stock repurchase program.
During fiscal 2012, 2011 and 2010, we entered into several structured stock repurchase agreements with large financial
institutions, whereupon we provided them with prepayments totaling $405.0 million, $695.0 million and $850.0 million,
respectively. Of the $405.0 million of prepayments during fiscal 2012, $100.0 million was under the new $2.0 billion stock
repurchase program and the remaining $305.0 million was under our previous $1.6 billion authority. Of the $850.0 million of
72
Table of Contents
prepayments during fiscal 2010, $250.0 million was under the stock repurchase program prior to the program amendment and the
remaining $600.0 million was under our $1.6 billion authority. We enter into these agreements in order to take advantage of
repurchasing shares at a guaranteed discount to the Volume Weighted Average Price (“VWAP”) of our common stock over a
specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return
on our cash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases.
Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment
to us.
The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used
to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the
contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon
discount. During fiscal 2012, we repurchased approximately 11.5 million shares at an average price of $32.29 through structured
repurchase agreements entered into during fiscal 2012. During fiscal 2011, we repurchased approximately 21.8 million shares at
an average price of $31.81 through structured repurchase agreements entered into during fiscal 2011. During fiscal 2010, we
repurchased approximately 31.2 million shares at an average price per share of $29.19 through structured repurchase agreements
entered into during fiscal 2009 and fiscal 2010.
For fiscal 2012, 2011 and 2010, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at
the payment date, though only shares physically delivered to us by November 30, 2012, December 2, 2011 and December 3, 2010
were excluded from the computation of earnings per share. As of November 30, 2012, $33.0 million of prepayments remained
under the agreement. As of December 2, 2011 and December 3, 2010, no prepayments remained under the agreements.
Subsequent to November 30, 2012, as part of our $2.0 billion stock repurchase program, we entered into a structured stock
repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $100.0 million. This
amount will be classified as treasury stock on our Consolidated Balance Sheets. Upon completion of the $100.0 million stock
repurchase agreement, $1.8 billion remains under our current authority. See Notes 13 and 20 of our Notes to Consolidated Financial
Statements for further discussion of our stock repurchase programs.
See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
for share repurchases during the quarter ended November 30, 2012.
Summary of Stock Repurchases for fiscal 2012, 2011 and 2010
(in thousands, except average amounts)
Board Approval
Date
Repurchases
Under the Plan
December 1997..
From employees(1)
Structured repurchases(2)
Structured repurchases(2)
Structured repurchases(2)
June 2010...........
April 2012..........
Total shares........
Total cost ...........
2012
2011
Shares
—
9,482
2,038
11,520
$ 371,995
Average
$
$
$
$
—
32.17
32.87
32.29
Shares
1
—
21,849
—
21,850
$ 695,015
2010
Average
$
$
$
$
$
33.57
—
31.81
—
31.81
Shares
1
9,358
21,807
—
31,166
$ 909,900
Average
$
$
$
$
$
35.66
33.11
27.51
—
29.19
_________________________________________
(1)
The repurchases from employees represent shares canceled when surrendered in lieu of cash payments for the option exercise
price or withholding taxes due.
(2)
Stock repurchase agreements executed with large financial institutions. See Stock Repurchase Program above.
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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Our principal commitments as of November 30, 2012 consist of obligations under operating leases, capital leases, royalty
agreements and various service agreements. See Note 15 of our Notes to Consolidated Financial Statements for additional
information regarding our contractual commitments.
Contractual Obligations
The following table summarizes our contractual obligations as of November 30, 2012 (in millions):
Payment Due by Period
Less than
1 year
Total
Notes .........................................................................
Operating lease obligations.......................................
Capital lease obligations ...........................................
Purchase obligations .................................................
Total........................................................................
$
$
1,869.5
246.1
13.2
342.2
2,471.0
$
$
62.3
47.3
11.4
256.4
377.4
1-3 years
$
$
714.8
73.0
1.8
46.5
836.1
More than
5 years
3-5 years
$
$
85.5
46.7
—
27.3
159.5
$
$
1,006.9
79.1
—
12.0
1,098.0
Senior Notes
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 and $900.0 million of 4.75% senior
notes due February 1, 2020. Interest on the Notes is payable semi-annually, in arrears on February 1 and August 1, commencing
on August 1, 2010. During fiscal 2012 interest payments totaled $62.3 million. At November 30, 2012, our maximum commitment
for interest payments under the Notes was $369.4 million.
Capital Lease Obligation
In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2 million and leaseback the same
equipment over a period of 43 months. This transaction was classified as a capital lease obligation and was recorded at fair value.
Covenants
Our credit facility contains a financial covenant requiring us not to exceed a maximum leverage ratio. Our Almaden Tower
lease includes certain financial ratios as defined in the lease agreements that are reported to the lessors quarterly. As of November 30,
2012, we were in compliance with all of our covenants. We believe these covenants will not impact our credit or cash in the coming
fiscal year or restrict our ability to execute our business plan. Our Notes do not contain any financial covenants.
Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless
payment would trigger an event of default or one currently exists. We do not anticipate paying any cash dividends in the foreseeable
future.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at November 30, 2012 was $160.5 million, exclusive of interest and
penalties.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments
that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of
current and non-current assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain
audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties
described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging
from $0 to approximately $5 million.
Royalties
We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is
generally based on a dollar amount per unit shipped or a percentage of the underlying revenue.
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Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual
value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Consolidated
Balance Sheets. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers
and Almaden Tower leases, respectively. The balance was amortized to our Consolidated Statements of Income over the life of
the original leases. As of November 30, 2012 there was no remaining balance of the unamortized portion of the fair value of the
residual value guarantees, for either lease, remaining on our Consolidated Balance Sheets.
Indemnifications
In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual
property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims
by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not
been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future
results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for
certain events or occurrences while the director or officer is or was serving at our request in such capacity. The indemnification
period covers all pertinent events and occurrences during the director's or officer's lifetime. The maximum potential amount of
future payments we could be required to make under these indemnification agreements is unlimited; however, we have director
and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Hedging Instruments
In countries outside the U.S., we transact business in U.S. dollars and various other currencies which subject us to exposure
from movements in exchange rates. We hedge our net recognized foreign currency assets and liabilities with foreign exchange
forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates.
Additionally, we may use foreign exchange option or forward contracts to hedge our Euro- , Yen-, or British Pound-denominated
revenue.
Our revenue exposures for fiscal 2012, 2011 and 2010 were as follows (in millions, except Yen):
Fiscal
2012
Euro ........................................................................................................... €
Yen (in billions)......................................................................................... ¥
British Pounds ........................................................................................... £
530.7
34.8
145.1
Fiscal
2011
€
¥
£
557.6
34.7
144.8
Fiscal
2010
€
¥
£
542.9
35.6
123.9
Our European operating expenses are primarily in Euro and our Japanese operating expenses are primarily in Yen, which
naturally mitigates a portion of the exposure related to our Euro- and Yen-denominated product revenue. We hedge a percentage
of forecasted international revenue with purchased option contracts and/or forward contracts. Our revenue hedging policy is
intended to help mitigate the impact on our forecasted revenue due to foreign currency exchange rate movements. In addition, we
hedge our net monetary assets and liabilities using forward contracts. These contracts subject us to risk of accounting gains and
losses; however, the gains and losses on these contracts largely offset gains and losses on the assets, liabilities and transactions
being hedged. As of November 30, 2012, the total absolute value of outstanding contracts was $937.2 million which included the
notional equivalent of $476.5 million in Euro, $220.7 million in Yen and $240.0 million in other foreign currencies. These hedges
are foreign currency forward exchange contracts which hedged our balance sheet exposures and purchased put option contracts
which hedged our forecasted revenue. As of November 30, 2012, all contracts were set to expire at various times through June
2013. The bank counterparties in these contracts expose us to credit-related losses in the event of their nonperformance. However,
to mitigate that risk, we only contract with counterparties who meet our minimum requirements under our counterparty risk
assessment process. In addition, our hedging policy establishes maximum limits for each counterparty.
We also have long-term investment exposures consisting of the capitalization and retained earnings in our non-USD
functional currency foreign subsidiaries. As of November 30, 2012 and December 2, 2011, this long-term investment exposure
75
Table of Contents
totaled a notional equivalent of $419.6 million and $481.4 million, respectively. At this time, we do not hedge these long-term
investment exposures.
Economic Hedging—Hedges of Forecasted Transactions
We may use foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”) exposures
resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may have
maturities between one and twelve months. Such cash flow exposures result from portions of our forecasted revenue denominated
in currencies other than the U.S. dollar, primarily the Euro, Yen, and British Pound. We enter into these foreign exchange contracts
to hedge forecasted revenue in the normal course of business and accordingly, they are not speculative in nature.
We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income, until the
forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge
to revenue. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we
reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income to interest and other
income, net on our Consolidated Statements of Income at that time. For the fiscal year ended November 30, 2012, there were no
net gains or losses recognized in other income relating to hedges of forecasted transactions that did not occur.
See Note 5 of our Notes to Consolidated Financial Statements for information regarding our hedging activities.
Balance Sheet Hedging—Hedging of Foreign Currency Assets and Liabilities
We hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the
risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative
instruments hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the
fair value recorded as interest and other income, net. These derivative instruments do not subject us to material balance sheet risk
due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets
and liabilities being hedged. At November 30, 2012, the outstanding balance sheet hedging derivatives had maturities of 180 days
or less.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of November 30, 2012. This sensitivity
analysis was based on a modeling technique that measures the hypothetical market value resulting from a 10% shift in the value
of exchange rates relative to the U.S. dollar. For option contracts, the Black-Scholes equation model was used. For forward
contracts, duration modeling was used where hypothetical changes are made to the spot rates of the currency. A 10% increase in
the value of the U.S. dollar (and a corresponding decrease in the value of the hedged foreign currency asset) would lead to an
increase in the fair value of our financial hedging instruments by $64.0 million. Conversely, a 10% decrease in the value of the
U.S. dollar would result in a decrease in the fair value of these financial instruments by $35.1 million.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency
exposure in a manner that entirely offsets the effects of changes in foreign exchange rates.
As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses in countries
where a natural hedge exists. For example, in many countries, revenue from the local currency product licenses substantially
offsets the local currency denominated operating expenses. We assess the need to utilize financial instruments to hedge currency
exposures, primarily related to operating expenses, on an ongoing basis.
We regularly review our hedging program and may as part of this review determine to change our hedging program.
See Note 5 of our Notes to Consolidated Financial Statements for information regarding our hedging activities.
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Table of Contents
Interest Rate Risk
Short-Term Investments and Fixed Income Securities
At November 30, 2012, we had debt securities classified as short-term investments of $2.1 billion. Changes in interest rates
could adversely affect the market value of these investments. The following table separates these investments, based on stated
maturities, to show the approximate exposure to interest rates (in millions):
Due within one year ............................................................................................................................................. $
Due within two years............................................................................................................................................
Due within three years..........................................................................................................................................
Due after three years ............................................................................................................................................
Total ................................................................................................................................................................... $
656.8
495.1
678.5
282.7
2,113.1
A sensitivity analysis was performed on our investment portfolio as of November 30, 2012. The analysis is based on an
estimate of the hypothetical changes in market value of the portfolio that would result from an immediate parallel shift in the yield
curve of various magnitudes.
The following tables present the hypothetical fair values of our debt securities classified as short-term investments assuming
immediate parallel shifts in the yield curve of 50 basis points (“BPS”), 100 BPS and 150 BPS. The analysis is shown as of
November 30, 2012 and December 2, 2011 (dollars in millions):
-150 BPS
2,138.4
-100 BPS
2,136.6
-50 BPS
2,129.3
-150 BPS
1,935.5
-100 BPS
1,930.6
-50 BPS
1,922.1
Fair Value
11/30/12
2,113.1
Fair Value
12/2/2011
1,909.9
+50 BPS
2,094.6
+100 BPS
2,076.5
+150 BPS
2,058.5
+50 BPS
1,896.4
+100 BPS
1,883.0
+150 BPS
1,869.9
Other Market Risk
Privately Held Long-Term Investments
The privately held companies in which we invest can still be considered in the start-up or development stages which are
inherently risky. The technologies or products these companies have under development are typically in the early stages and may
never materialize, which could result in a loss of a substantial part of our initial investment in these companies. The evaluation of
privately held companies is based on information that we request from these companies, which is not subject to the same disclosure
regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy
of the data received from these companies.
Marketable Equity Securities
We have immaterial exposure to equity price risk on our portfolio of marketable equity securities. As of November 30,
2012, our total equity holdings in publicly traded companies were valued at $0.2 million compared to $12.3 million at December 2,
2011. The decrease was primarily due to the disposal of certain of our equity holdings during fiscal 2012.
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Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Consolidated Balance Sheets .......................................................................................................................................
Consolidated Statements of Income .............................................................................................................................
Consolidated Statements of Stockholders' Equity and Comprehensive Income..........................................................
Consolidated Statements of Cash Flows ......................................................................................................................
Notes to Consolidated Financial Statements................................................................................................................
Report of KPMG LLP, Independent Registered Public Accounting Firm...................................................................
79
80
81
82
83
122
All financial statement schedules have been omitted, since the required information is not applicable or is not present in
amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated
Financial Statements and Notes thereto.
78
Table of Contents
ADOBE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
November 30,
2012
ASSETS
Current assets:
Cash and cash equivalents.................................................................................................................... $
Short-term investments ........................................................................................................................
Trade receivables, net of allowances for doubtful accounts of $12,643 and $15,080, respectively...
Deferred income taxes..........................................................................................................................
Prepaid expenses and other current assets ...........................................................................................
Total current assets..........................................................................................................................
Property and equipment, net ...................................................................................................................
Goodwill .................................................................................................................................................
Purchased and other intangibles, net.......................................................................................................
Investment in lease receivable ................................................................................................................
Other assets .............................................................................................................................................
Total assets...................................................................................................................................... $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables...................................................................................................................................... $
Accrued expenses.................................................................................................................................
Capital lease obligations ......................................................................................................................
Accrued restructuring...........................................................................................................................
Income taxes payable ...........................................................................................................................
Deferred revenue..................................................................................................................................
Total current liabilities....................................................................................................................
Long-term liabilities:
Debt and capital lease obligations........................................................................................................
Deferred revenue..................................................................................................................................
Accrued restructuring...........................................................................................................................
Income taxes payable ...........................................................................................................................
Deferred income taxes..........................................................................................................................
Other liabilities.....................................................................................................................................
Total liabilities ................................................................................................................................
December 2,
2011
1,425,052
2,113,301
617,233
59,537
116,237
4,331,360
664,302
4,133,259
545,036
207,239
93,327
9,974,523
$
49,759
590,140
11,217
9,287
49,886
561,463
1,271,752
$
$
989,500
1,922,192
634,373
91,963
133,423
3,771,451
527,828
3,849,217
545,526
207,239
89,922
8,991,183
86,660
554,941
9,212
80,930
42,634
476,402
1,250,779
1,496,938
58,102
12,263
155,096
265,106
50,084
3,309,341
1,505,096
55,303
7,449
156,958
181,602
50,883
3,208,070
—
—
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized; none issued..........................................
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued;
494,132 and 491,540 shares outstanding, respectively ...................................................................
Additional paid-in-capital ....................................................................................................................
Retained earnings .................................................................................................................................
Accumulated other comprehensive income .........................................................................................
Treasury stock, at cost (106,702 and 109,294 shares, respectively), net of reissuances......................
Total stockholders’ equity...............................................................................................................
Total liabilities and stockholders’ equity........................................................................................ $
See accompanying Notes to Consolidated Financial Statements.
79
61
3,038,665
7,003,003
30,712
(3,407,259)
6,665,182
9,974,523 $
61
2,753,896
6,528,735
29,950
(3,529,529)
5,783,113
8,991,183
Table of Contents
ADOBE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended
November 30,
2012
Revenue:
Products .................................................................................................... $
Subscription ..............................................................................................
Services and support .................................................................................
Total revenue........................................................................................
3,342,843
673,206
387,628
4,403,677
December 2,
2011
$
3,416,483
458,634
341,141
4,216,258
December 3,
2010
$
3,159,161
386,805
254,034
3,800,000
Cost of revenue:
Products ....................................................................................................
Subscription ..............................................................................................
Services and support .................................................................................
Total cost of revenue............................................................................
121,663
219,102
143,017
483,782
125,640
194,033
118,200
437,873
127,453
195,595
80,454
403,502
Gross profit .................................................................................................
3,919,895
3,778,385
3,396,498
742,823
1,516,159
434,982
(2,917)
48,657
2,739,704
738,053
1,385,822
414,605
97,773
42,833
2,679,086
680,332
1,244,197
383,499
23,266
72,130
2,403,424
1,180,191
1,099,299
993,074
Operating expenses:
Research and development .......................................................................
Sales and marketing..................................................................................
General and administrative .......................................................................
Restructuring and other related charges (credits) .....................................
Amortization of purchased intangibles.....................................................
Total operating expenses......................................................................
Operating income ........................................................................................
Non-operating income (expense):
Interest and other income (expense), net ..................................................
Interest expense ........................................................................................
Investment gains (losses), net ...................................................................
Total non-operating income (expense), net..........................................
Income before income taxes .......................................................................
Provision for income taxes..........................................................................
Net income .................................................................................................. $
Basic net income per share.......................................................................... $
Shares used to compute basic net income per share ...................................
Diluted net income per share ...................................................................... $
Shares used to compute diluted net income per share.................................
(3,414)
(67,487)
(2,974)
(66,952)
9,504
(61,397)
5,857
(64,069)
1,118,794
286,019
832,775
1.68
494,731
1.66
502,721
$
$
$
See accompanying Notes to Consolidated Financial Statements.
80
1,035,230
202,383
832,847
1.67
497,469
1.65
503,921
13,139
(56,952)
(6,110)
(49,923)
$
$
$
943,151
168,471
774,680
1.49
519,045
1.47
525,824
Table of Contents
ADOBE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
61
$ 2,390,061
$5,299,914
$
—
—
—
774,680
—
—
—
—
—
—
—
—
—
—
(177,099)
—
—
11,107
—
—
—
—
—
—
—
—
—
3,264
—
—
—
—
3,264
—
—
230,945
—
—
—
—
230,945
—
—
—
—
—
—
(409)
61
$ 2,458,278
$5,980,914
—
—
—
832,847
—
—
—
832,847
—
—
—
—
12,522
—
—
12,522
—
—
—
—
—
—
—
845,369
—
—
—
—
11,492
429,780
144,754
—
—
9,568
—
—
—
—
—
—
—
Common Stock
Shares
Balances at November 27, 2009 ........
600,834
Amount
$
24,446
Treasury Stock
Shares
Amount
Total
(78,177) $(2,823,914) $4,890,568
Comprehensive income:
Net income .........................................
Other comprehensive income,
net of taxes (Note 13) ....................
Total comprehensive income, net of
taxes...............................................
Re-issuance of treasury stock under
stock compensation plans..............
Tax benefit from employee stock
plans ...................................................
Purchase of treasury stock .................
Equity awards assumed for
acquisition ......................................
Stock-based compensation.................
Value of shares in deferred
compensation plan .............................
Balances at December 3, 2010...........
600,834
$
—
—
—
—
—
—
—
—
767,662
—
10,407
410,049
139,270
(7,018)
(93,680)
$
17,428
—
(31,167)
—
(850,020)
774,680
(7,018)
11,107
(850,020)
(409)
(98,937) $(3,264,294) $5,192,387
Comprehensive income:
Net income .........................................
Other comprehensive income,
net of taxes (Note 13) ....................
Total comprehensive income, net of
taxes ..............................................
Re-issuance of treasury stock under
stock compensation plans..............
Tax benefit from employee stock
plans ...................................................
Purchase of treasury stock .................
Stock-based compensation.................
—
Balances at December 2, 2011...........
600,834
(285,026)
286,050
—
$ 2,753,896
$6,528,735
—
—
—
832,775
—
—
—
832,775
—
—
—
—
762
—
—
762
—
—
—
—
—
—
—
833,537
—
—
—
—
14,111
527,781
169,274
Tax benefit (detriment) from
employee stock plans .........................
—
—
—
—
—
—
Purchase of treasury stock .................
—
—
—
—
—
Equity awards assumed for
acquisition ......................................
—
—
4,265
—
—
—
—
4,265
Stock-based compensation.................
—
—
297,346
—
—
—
—
297,346
—
—
—
—
—
—
(511)
61
$ 3,038,665
$7,003,003
29,950
—
9,568
(695,015)
61
$
—
—
(695,015)
—
$
—
—
(21,849)
286,050
(109,294) $(3,529,529) $5,783,113
Comprehensive income:
Net income .........................................
Other comprehensive income,
net of taxes (Note 13) ....................
Total comprehensive income, net of
taxes ..............................................
Re-issuance of treasury stock under
stock compensation plans..............
Value of shares in deferred
compensation plan .............................
Balances at November 30, 2012 ........
600,834
$
(16,842)
(358,507)
$
30,712
See accompanying Notes to Consolidated Financial Statements.
81
(11,519)
(405,000)
(16,842)
(405,000)
(511)
(106,702) $(3,407,259) $6,665,182
Table of Contents
ADOBE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
December 2,
2011
November 30,
2012
Cash flows from operating activities:
Net income .....................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion.................................................................
Stock-based compensation .......................................................................................
Deferred income taxes ..............................................................................................
Unrealized (gains) losses on investments.................................................................
Retirements and disposals of property and equipment.............................................
Other non-cash items ................................................................................................
Excess tax benefits from stock-based compensation................................................
Changes in operating assets and liabilities, net of acquired assets and
assumed liabilities:
Trade receivables, net ............................................................................................
Prepaid expenses and other current assets .............................................................
Trade payables .......................................................................................................
Accrued expenses...................................................................................................
Accrued restructuring.............................................................................................
Income taxes payable.............................................................................................
Deferred revenue....................................................................................................
Net cash provided by operating activities.........................................................
Cash flows from investing activities:
Purchases of short-term investments .............................................................................
Maturities of short-term investments .............................................................................
Proceeds from sales of short-term investments .............................................................
Business acquisitions, net of cash acquired ...................................................................
Purchases of property and equipment ............................................................................
Proceeds from sale of property and equipment..............................................................
Purchases of long-term investments, intangibles and other assets ................................
Proceeds from sale of long-term investments................................................................
Net cash used for investing activities ...............................................................
Cash flows from financing activities:
Purchases of treasury stock............................................................................................
Net proceeds from issuance of treasury stock................................................................
Excess tax benefits from stock-based compensation .....................................................
Proceeds from debt and capital lease obligations ..........................................................
Repayment of debt and capital lease obligations...........................................................
Debt issuance costs ........................................................................................................
Net cash used for financing activities...............................................................
Effect of foreign currency exchange rates on cash and cash equivalents.........................
Net increase (decrease) in cash and cash equivalents.......................................................
Cash and cash equivalents at beginning of year ...............................................................
Cash and cash equivalents at end of year .........................................................................
Supplemental disclosures:
Cash paid for income taxes, net of refunds....................................................................
Cash paid for interest .....................................................................................................
Non-cash investing activities:
Issuance of common stock and stock awards assumed in business acquisitions...........
Property and equipment acquired under capital leases ..................................................
$
$
832,775
832,847
$
774,680
299,766
298,502
89,212
(8,535)
1,113
(13,658)
(10,003)
270,205
286,103
51,415
(4,349)
14,772
24,560
(9,949)
292,738
231,086
(172,329)
11,517
674
13,695
(16,430)
45,166
4,552
(62,874)
(7,770)
(66,047)
10,041
87,340
1,499,580
(81,065)
(5,100)
32,203
(24,708)
71,932
(16,661)
101,109
1,543,314
(134,276)
(39,963)
(10,092)
127,814
(26,811)
(48,656)
109,348
1,112,995
(1,776,485)
439,878
1,126,886
(353,195)
(271,076)
—
(29,701)
29,031
(834,662)
(1,861,075)
486,050
1,148,148
(259,046)
(210,294)
—
(65,600)
4,415
(757,402)
(2,600,787)
643,614
1,134,365
(193,281)
(169,642)
32,151
(28,216)
22,502
(1,159,294)
(405,000)
169,274
10,003
3,152
(9,855)
(2,297)
(234,723)
5,357
435,552
989,500
1,425,052 $
(695,015)
144,754
9,949
—
(10,046)
—
(550,358)
4,055
239,609
749,891
989,500 $
(850,020)
139,270
16,430
1,493,439
(1,003,719)
(10,662)
(215,262)
11,965
(249,596)
999,487
749,891
$
$
201,125
66,265
$
$
158,373
63,967
$
$
389,114
34,632
$
$
4,265
—
$
$
—
—
$
$
3,264
32,151
See accompanying Notes to Consolidated Financial Statements.
82
$
December 3,
2010
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Operations
Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world.
We offer a line of software and services used by creative professionals, marketers, knowledge workers, application developers,
enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and
experiences across multiple operating systems, devices and media. We market and license our software directly to enterprise
customers through our sales force and to end users through app stores and our own website at www.adobe.com. We also distribute
our products through a network of distributors, value-added resellers (“VARs”), systems integrators, independent software vendors
(“ISVs”), retailers and original equipment manufacturers (“OEMs”). In addition, we license our technology to hardware
manufacturers, software developers and service providers for use in their products and solutions. We offer some of our products
via a Software-as-a-Service (“SaaS”) model (also known as a hosted or “cloud-based” model) as well as through term subscription
and pay-per-use models. Our software runs on personal computers (“PCs”) and server-based computers, as well as on smartphones,
tablets and other devices, depending on the product. We have operations in the Americas, Europe, Middle East and Africa (“EMEA”)
and Asia-Pacific (“APAC”).
Basis of Presentation
The accompanying Consolidated Financial Statements include those of Adobe and its subsidiaries, after elimination of all
intercompany accounts and transactions. We have prepared the accompanying Consolidated Financial Statements in accordance
with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations
of the United States Securities and Exchange Commission (the “SEC”).
Use of Estimates
In preparing Consolidated Financial Statements and related disclosures in conformity with GAAP and pursuant to the rules
and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the Consolidated Financial
Statements and accompanying notes. Estimates are used for, but not limited to sales allowances and programs, bad debts, stockbased compensation, determining the fair value of acquired assets and assumed liabilities, excess inventory and purchase
commitments, restructuring charges, facilities lease losses, impairment of goodwill and intangible assets, litigation, income taxes
and investments. Actual results may differ materially from these estimates.
Fiscal Year
Our fiscal year is a 52- or 53-week year that ends on the Friday closest to November 30. Fiscal 2012 and 2011 were 52week years compared with fiscal 2010 which was a 53-week year.
Reclassification
Certain immaterial prior year amounts have been reclassified to conform to current year presentation in the Consolidated
Statements of Cash Flows and Consolidated Statements of Income.
Significant Accounting Policies
Revenue Recognition
Our revenue is derived from the licensing of perpetual and time-based software products, associated software maintenance
and support plans, non-software related hosting services, consulting services, training and technical support.
We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement
exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable.
Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have
a significant impact on the timing and amount of revenue we report.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Multiple Element Arrangements
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades,
maintenance and support, hosting services, and consulting.
For our software and software-related multiple element arrangements, we must: (1) determine whether and when each
element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered
products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence (“VSOE”),
and (4) allocate the total price among the various elements. VSOE of fair value is used to allocate a portion of the price to the
undelivered elements and the residual method is used to allocate the remaining portion to the delivered elements. Absent VSOE,
revenue is deferred until the earlier of the point at which VSOE of fair value exists for any undelivered element or until all elements
of the arrangement have been delivered. However, if the only undelivered element is maintenance and support, the entire
arrangement fee is recognized ratably over the performance period. Changes in assumptions or judgments or changes to the
elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a
particular period.
We determine VSOE for each element based on historical stand-alone sales to third parties or from the stated renewal rate
for the elements contained in the initial arrangement. In determining VSOE, we require that a substantial majority of the selling
prices for a product or service fall within a reasonably narrow pricing range.
We have established VSOE for our software maintenance and support services, custom software development services,
consulting services and training.
At the beginning of our first quarter of fiscal 2010, we adopted the accounting standard for multiple element revenue
arrangements which was amended by the FASB in October 2009.
For multiple element arrangements containing our non-software services, we must: (1) determine whether and when each
element has been delivered; (2) determine fair value of each element using the selling price hierarchy of VSOE of fair value, third
party evidence (“TPE”) or best estimated selling price (“BESP”), as applicable and (3) allocate the total price among the various
elements based on the relative selling price method.
For multiple element arrangements that contain software and non-software elements such as our hosted offerings, we allocate
revenue to software or software-related elements as a group and any non-software element separately based on the selling price
hierarchy. We determine the selling price for each deliverable using VSOE of fair value of selling price, if it exists, or TPE of
selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use its BESP for that deliverable. Revenue
allocated to each element is then recognized when the basic revenue recognition criteria are met for each element. Once revenue
is allocated to software or software-related elements as a group, revenue is recognized under the guidance applicable to software
transactions.
When we are unable to establish selling prices using VSOE or TPE, we use BESP in our allocation of arrangement
consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were
sold on a stand-alone basis. We are generally unable to establish VSOE or TPE for non-software elements and as such, we use
BESP. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized
offerings.
We determine BESP for a product or service by considering multiple factors including, but not limited to, major product
groupings, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices.
Significant pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable
and our price lists.
Product Revenue
We recognize our product revenue upon shipment, provided all other revenue recognition criteria have been met. Our
desktop application product revenue from distributors is subject to agreements allowing limited rights of return, rebates and price
protection. Our direct sales and OEM sales are also subject to limited rights of return. Accordingly, we reduce revenue recognized
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
for estimated future returns, price protection and rebates at the time the related revenue is recorded. The estimates for returns are
adjusted periodically based upon historical rates of returns, inventory levels in the distribution channel and other related factors.
We record the estimated costs of providing free technical phone support to customers for our software products.
We recognize OEM licensing revenue, primarily royalties, when OEMs ship products incorporating our software, provided
collection of such revenue is deemed probable. For certain OEM customers, we must estimate royalty revenue due to the timing
of securing customer information. This estimate is based on a combination of our generated forecasts and actual historical reporting
by our OEM customers. To substantiate our ability to estimate revenue, we review license royalty revenue reports ultimately
received from our significant OEM customers in comparison to the amounts estimated in the prior period.
Our product-related deferred revenue includes maintenance upgrade revenue and customer advances under OEM license
agreements. Our maintenance upgrade revenue for our desktop application products is included in our product revenue line item
as the maintenance primarily entitles customers to receive product upgrades. In cases where we provide a specified free upgrade
to an existing product, we defer the fair value for the specified upgrade right until the future obligation is fulfilled or when the
right to the specified free upgrade expires.
Subscription and Services and Support Revenue
We recognize revenue for hosting services that are based on a committed number of transactions, ratably beginning on the
date the customer commences use of our services and continuing through the end of the customer term. Over-usage fees, and fees
billed based on the actual number of transactions from which we capture data, are billed in accordance with contract terms as these
fees are incurred. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue, depending
on whether all revenue recognition criteria have been met.
Our services and support revenue is composed of consulting, training and maintenance and support, primarily related to
the licensing of our Enterprise and Mobile and Device Solutions products. Our support revenue also includes technical support
and developer support to partners and developer organizations related to our desktop products.
Our consulting revenue is recognized using a time and materials basis and is measured monthly based on input measures,
such as hours incurred to date, with consideration given to output measures, such as contract milestones when applicable. Our
maintenance and support offerings, which entitle customers to receive product upgrades and enhancements on a when and if
available basis or technical support, depending on the offering, are recognized ratably over the performance period of the
arrangement.
Rights of Return, Rebates and Price Protection
As discussed above, we offer limited rights of return, rebates and price protection of our products under various policies
and programs with our distributors, resellers and/or end-user customers. We estimate and record reserves for these programs as
an offset to revenue and accounts receivable. Below is a summary of each of the general provisions in our contracts:
•
Distributors are allowed limited rights of return of products purchased during the previous quarter. In addition, distributors
are allowed to return products that have reached the end of their lives and products that are being replaced by new versions.
•
We offer rebates to our distributors, resellers and/or end user customers. The amount of revenue that is reduced for
distributor and reseller rebates is based on actual performance against objectives set forth by us for a particular reporting
period (volume, timely reporting, etc.). If mail-in or other promotional rebates are offered, the amount of revenue reduced
is based on the dollar amount of the rebate, taking into consideration an estimated redemption rate calculated using
historical trends.
•
From time to time, we may offer price protection to our distributors that allow for the right to a credit if we permanently
reduce the price of a software product. The amount of revenue that is reduced for price protection is calculated as the
difference between the old and new price of a software product on inventory held by the distributor prior to the effective
date of the decrease.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Although our subscription contracts are generally non-cancelable, a limited number of customers have the right to cancel
their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term. In the event a
customer cancels its contract, they are not entitled to a refund for prior services we have provided to them.
On a quarterly basis, the amount of revenue that is reserved for future returns is calculated based on our historical trends
and data specific to each reporting period. We review the actual returns evidenced in prior quarters as a percent of revenue to
determine a historical returns rate. We then apply the historical rate to the current period revenue as a basis for estimating future
returns. When necessary, we also provide a specific returns reserve for product in the distribution channel in excess of estimated
requirements. This estimate can be affected by the amount of a particular product in the channel, the rate of sell-through, product
plans and other factors.
Revenue Reserve
Revenue reserve rollforward (in thousands):
2012
Beginning balance ....................................................................................................
Amount charged to revenue......................................................................................
Actual returns............................................................................................................
Ending balance..........................................................................................................
2011
2010
$
60,887 $
49,426 $
34,401
170,839
162,491
171,607
(174,668)
(151,030)
(156,582)
$
57,058 $
60,887 $
49,426
Deferred Revenue
Deferred revenue consists substantially of payments received in advance of revenue recognition for our products and
services described above. We recognize deferred revenue as revenue only when the revenue recognition criteria are met.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade
receivables. The allowance is based on both specific and general reserves. We regularly review our trade receivables allowances
by considering such factors as historical experience, credit-worthiness, the age of the trade receivable balances and current economic
conditions that may affect a customer’s ability to pay and we specifically reserve for those deemed uncollectible.
2012
(in thousands)
Beginning balance ....................................................................................................
Increase due to acquisition........................................................................................
Charged to operating expenses .................................................................................
Deductions(1) .............................................................................................................
Ending balance..........................................................................................................
$
$
15,080 $
325
3,356
(6,118)
12,643 $
2011
15,233 $
269
6,271
(6,693)
15,080 $
2010
15,225
662
3,673
(4,327)
15,233
________________________________________
(1)
Deductions related to the allowance for doubtful accounts represent amounts written off against the allowance, less recoveries.
Property and Equipment
We record property and equipment at cost less accumulated depreciation and amortization. Property and equipment are
depreciated using the straight-line method over their estimated useful lives ranging from 1 to 5 years for computers and equipment
as well as server hardware under capital leases, 1 to 6 years for furniture and fixtures and up to 35 years for buildings. Leasehold
improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated
useful lives ranging from 1 to 15 years.
Goodwill, Purchased Intangibles and Other Long-Lived Assets
We review our goodwill for impairment annually, or more frequently, if facts and circumstances warrant a review. We
completed our annual impairment test in the second quarter of fiscal 2012 and determined that there was no impairment.
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill is assigned to one or more reporting segments on the date of acquisition. We evaluate goodwill for impairment
by comparing the fair value of each of our reporting segments to its carrying value, including the associated goodwill. To determine
the fair values, we use the market approach based on comparable publicly traded companies in similar lines of businesses and the
income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted
revenue, operating costs and other relevant factors.
We amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever
an impairment indicator exists. We continually monitor events and changes in circumstances that could indicate carrying amounts
of our long-lived assets, including our intangible assets may not be recoverable. When such events or changes in circumstances
occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted
expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize
an impairment loss based on any excess of the carrying amount over the fair value of the assets. We did not recognize any intangible
asset impairment charges in fiscal 2012, 2011 or 2010.
Our intangible assets are amortized over their estimated useful lives of 1 to 13 years. Amortization is based on the pattern
in which the economic benefits of the intangible asset will be consumed. The weighted average useful lives of our intangible assets
was as follows:
Weighted
Average
Useful Life
(years)
Purchased technology ............................................................................................................................................
Customer contracts and relationships ....................................................................................................................
Trademarks.............................................................................................................................................................
Acquired rights to use technology .........................................................................................................................
Localization............................................................................................................................................................
Other intangibles....................................................................................................................................................
5
10
7
9
1
3
Software Development Costs
Capitalization of software development costs for software to be sold, leased, or otherwise marketed begins upon the
establishment of technological feasibility, which is generally the completion of a working prototype that has been certified as
having no critical bugs and is a release candidate. Amortization begins once the software is ready for its intended use, generally
based on the pattern in which the economic benefits will be consumed. To date, software development costs incurred between
completion of a working prototype and general availability of the related product have not been material.
Internal Use Software
We capitalize costs associated with customized internal-use software systems that have reached the application development
stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and
payroll-related expenses for employees, who are directly associated with the development of the applications. Capitalization of
such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially
complete and is ready for its intended purpose.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized
for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized
for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities,
and for operating losses and tax credit carryforwards. We record a valuation allowance to reduce deferred tax assets to an amount
for which realization is more likely than not.
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Taxes Collected from Customers
We net taxes collected from customers against those remitted to government authorities in our financial statements.
Accordingly, taxes collected from customers are not reported as revenue.
Treasury Stock
We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the
difference is recorded as a component of additional paid-in-capital in our Consolidated Balance Sheets. When treasury stock is
re-issued at a price lower than its cost, the difference is recorded as a component of additional paid-in-capital to the extent that
there are previously recorded gains to offset the losses. If there are no treasury stock gains in additional paid-in-capital, the losses
upon re-issuance of treasury stock are recorded as a component of retained earnings in our Consolidated Balance Sheets.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses for fiscal 2012, 2011 and 2010 were $99.4 million, $75.1
million and $65.9 million, respectively.
Foreign Currency Translation
We translate assets and liabilities of foreign subsidiaries, whose functional currency is their local currency, at exchange
rates in effect at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates. We include
accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income.
Foreign Currency and Other Hedging Instruments
In countries outside the United States (“U.S.”), we transact business in U.S. dollars and in various other currencies. In
Europe and Japan, transactions that are denominated in Euro, Yen and British Pounds are subject to exposure from movements in
exchange rates. We hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to
reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. We use foreign exchange
option and forward contracts for Euro-,Yen- and British Pound-denominated revenue.
We account for our derivative instruments as either assets or liabilities on the balance sheet and measure them at fair value.
Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is
designated and qualifies for hedge accounting. Derivatives that do not qualify for hedge accounting are adjusted to fair value
through earnings. See Note 5 for information regarding our hedging activities.
Gains and losses from foreign exchange forward contracts which hedge certain balance sheet positions, primarily nonfunctional currency denominated assets and liabilities (e.g., trade receivables and accounts payable) are recorded each period as
a component of interest and other income, net in our Consolidated Statements of Income. Foreign exchange forward and option
contracts hedging forecasted non-functional currency product licensing revenue, are designated as cash flow hedges under
accounting for derivative instruments and hedging activities, with gains and losses recorded net of tax, as a component of other
comprehensive income (“OCI”) in stockholders’ equity and reclassified into revenue at the time the forecasted transactions occur.
Concentration of Risk
Financial instruments that potentially subject us to concentrations of credit risk are short-term fixed-income investments,
structured repurchase transactions, derivatives hedging foreign currency risk, and trade receivables.
Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers.
Our cash and investments are held and managed by recognized financial institutions that follow our investment policy. Our policy
limits the amount of credit exposure to any one security issue or issuer and we believe no significant concentration of credit risk
exists with respect to these investments.
We mitigate concentration of risk related to foreign currency hedges through a policy that establishes counterparty limits.
The bank counterparties in these contracts expose us to credit-related losses in the event of their nonperformance. However, to
mitigate that risk, we only contract with counterparties who meet our minimum requirements under our counterparty risk assessment
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
process. In addition, our hedging policy establishes maximum limits for each counterparty. We monitor ratings, credit spreads and
potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, we will adjust our
exposure to various counterparties.
The aggregate fair value of derivative instruments in net asset positions as of November 30, 2012 and December 2, 2011
was $13.5 million and $25.4 million, respectively. These amounts represent the maximum exposure to loss at the reporting date
as a result of all of the counterparties failing to perform as contracted. These exposures could be reduced by up to $1.0 million
and $3.9 million, respectively from liabilities included in master netting arrangements with those same counterparties.
Credit risk in receivables is limited to OEMs, dealers and distributors of hardware and software products to the retail market,
customers to whom we license software directly and our SaaS offerings. We are also experiencing elevated delinquency and bad
debt write-offs related to our receivables assumed in business combinations. A credit review is completed for our new distributors,
dealers and OEMs. We also perform ongoing credit evaluations of our customers’ financial condition and require letters of credit
or other guarantees, whenever deemed necessary. The credit limit given to the customer is based on our risk assessment of their
ability to pay, country risk and other factors and is not contingent on the resale of the product or on the collection of payments
from their customers. We also purchase credit insurance to mitigate credit risk in some foreign markets where we believe it is
warranted. If we license our software or provide SaaS services to a customer where we have a reason to believe the customer’s
ability to pay is not probable, due to country risk or credit risk, we will not recognize the revenue. We will revert to recognizing
the revenue on a cash basis, assuming all other criteria for revenue recognition has been met.
See Note 18 for information regarding our significant customers.
We derive a significant portion of our OEM PostScript and Other licensing revenue from a small number of OEMs. Our
OEMs on occasion seek to renegotiate their royalty arrangements. We evaluate these requests on a case-by-case basis. If an
agreement is not reached, a customer may decide to pursue other options, which could result in lower licensing revenue for us.
Recent Accounting Pronouncements
There have been no new accounting pronouncements made effective during the year ended November 30, 2012, that are
of significance, or potential significance, to us.
NOTE 2. ACQUISITIONS
Fiscal 2012 Acquisition
Efficient Frontier
On January 13, 2012, we completed our acquisition of privately held Efficient Frontier, a multi-channel digital ad buying
and optimization company. During the first quarter of fiscal 2012, we began integrating Efficient Frontier into our Digital Marketing
segment. The Efficient Frontier business adds cross-channel digital ad campaign forecasting, execution and optimization
capabilities to our Adobe Marketing Cloud, along with a social marketing engagement platform and social ad buying capabilities.
We have included the financial results of Efficient Frontier in our consolidated financial statements beginning on the acquisition
date.
Under the acquisition method of accounting, the total purchase price was allocated to Efficient Frontier’s net tangible and
intangible assets based upon their estimated fair values as of January 13, 2012. During fiscal 2012, we made adjustments to the
preliminary purchase price allocation. The total adjusted and final purchase price for Efficient Frontier was approximately $374.7
million of which approximately $291.4 million was allocated to goodwill, $122.7 million to identifiable intangible assets and $39.4
million to net liabilities assumed. The impact of this acquisition was not material to our consolidated financial statements.
Fiscal 2011 Acquisitions
During fiscal 2011, we completed six business combinations with aggregate purchase prices totaling approximately $281.0
million of which approximately $213.3 million was allocated to goodwill, $87.5 million to identifiable intangible assets and $19.8
million to net liabilities assumed. We also completed two asset acquisitions with aggregate purchase prices totaling $47.3 million.
We have included the financial results of the business combinations in our consolidated results of operations beginning on the
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
respective acquisition dates however the impact of these acquisitions was not material to our consolidated balance sheets and
results of operations.
Fiscal 2010 Acquisition
Day Software Holding AG
On October 28, 2010, we completed our acquisition of Day Software Holding AG (“Day”), a provider of web content
management solutions that many leading global enterprises rely on for Web 2.0 content application and content infrastructure.
Day was based in Basel, Switzerland and Boston, Massachusetts. Following the closing, we integrated Day as a product line within
our Digital Marketing segment for financial reporting purposes. We have included the financial results of Day in our Consolidated
Financial Statements beginning on the acquisition date.
Under the acquisition method of accounting, the total preliminary purchase price was allocated to Day’s net tangible and
intangible assets based upon their estimated fair values as of October 28, 2010. During the first half of fiscal 2011, we finalized
our purchase accounting after adjustments were made to the preliminary purchase price allocation. The total final purchase price
for Day was approximately $248.3 million of which approximately $157.0 million was allocated to goodwill, $79.2 million to
substantially all of the identifiable intangible assets and $9.0 million to net tangible assets. The impact of this acquisition was not
material to our consolidated balance sheets or results of operations.
NOTE 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. We classify
all of our cash equivalents and short-term investments as “available-for-sale.” In general, these investments are free of trading
restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information.
Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is reflected as a separate
component of stockholders’ equity in our Consolidated Balance Sheets. Gains and losses are recognized when realized in our
Consolidated Statements of Income. When we have determined that an other-than-temporary decline in fair value has occurred,
the amount of the decline that is related to a credit loss is recognized in income. Gains and losses are determined using the specific
identification method.
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash, cash equivalents and short-term investments consisted of the following as of November 30, 2012 (in thousands):
Amortized
Cost
Current assets:
Cash........................................................................................... $
200,771
Cash equivalents:
Corporate bonds and commercial paper...............................
3,998
Money market mutual funds and repurchase agreements ....
1,171,270
Municipal securities .............................................................
3,895
Time deposits .......................................................................
45,118
Total cash equivalents........................................................
1,224,281
Total cash and cash equivalents............................................
1,425,052
Short-term fixed income securities:
Corporate bonds and commercial paper...............................
Foreign government securities .............................................
Municipal securities .............................................................
Time deposits .......................................................................
U.S. agency securities ..........................................................
U.S. Treasury securities........................................................
Subtotal ..............................................................................
Marketable equity securities .....................................................
Total short-term investments................................................
Total cash, cash equivalents and short-term investments............ $
91
1,059,158
6,919
180,488
20,113
501,863
330,072
2,098,613
237
2,098,850
3,523,902
Unrealized
Gains
$
—
Unrealized
Losses
$
—
—
—
—
—
—
$
11,415
45
97
—
2,346
801
14,704
7
14,711
14,711
—
—
—
—
—
—
—
(133)
(12)
(60)
—
(18)
(37)
(260)
$
—
(260)
(260)
Estimated
Fair Value
$
200,771
3,998
1,171,270
3,895
45,118
1,224,281
1,425,052
1,070,440
6,952
180,525
20,113
504,191
330,836
2,113,057
244
2,113,301
$ 3,538,353
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash, cash equivalents and short-term investments consisted of the following as of December 2, 2011 (in thousands):
Amortized
Cost
Current assets:
Cash........................................................................................... $
Cash equivalents:
Commercial paper ................................................................
Money market mutual funds and repurchase agreements ....
Time deposits .......................................................................
U.S. agency securities ..........................................................
U.S. Treasury securities........................................................
Total cash equivalents........................................................
Total cash and cash equivalents............................................
Short-term fixed income securities:
Corporate bonds and commercial paper...............................
Foreign government securities .............................................
Municipal securities .............................................................
U.S. agency securities ..........................................................
U.S. Treasury securities........................................................
Subtotal ..............................................................................
Marketable equity securities .....................................................
Total short-term investments................................................
Total cash, cash equivalents and short-term investments............ $
Unrealized
Gains
261,206
$
—
Unrealized
Losses
$
Estimated
Fair Value
—
$
261,206
15,948
687,152
15,694
2,500
7,000
728,294
—
—
—
—
—
—
—
—
—
—
—
—
15,948
687,152
15,694
2,500
7,000
728,294
989,500
—
—
989,500
1,109,674
7,280
106,255
374,514
307,181
1,904,904
10,581
1,915,485
2,904,985
6,533
43
104
1,496
1,640
9,816
1,686
11,502
11,502
$
(4,670)
—
(4)
(117)
(4)
(4,795)
—
(4,795)
(4,795)
$
1,111,537
7,323
106,355
375,893
308,817
1,909,925
12,267
1,922,192
$ 2,911,692
See Note 4 for further information regarding the fair value of our financial instruments.
The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated
by investment category, that have been in a continuous unrealized loss position for less than twelve months, as of November 30,
2012 and December 2, 2011 (in thousands):
2012
Fair
Value
Corporate bonds and commercial paper ...................... $
Foreign government securities ....................................
Municipal securities.....................................................
U.S. Treasury and agency securities............................
Total ................................................................... $
95,489
2,105
40,524
48,203
186,321
2011
Gross
Unrealized
Losses
$
$
(132) $
(12)
(60)
(55)
(259) $
Gross
Unrealized
Losses
Fair
Value
408,178
—
17,125
133,857
559,160
$
$
(4,438)
—
(3)
(121)
(4,562)
There were 65 securities and 213 securities in an unrealized loss position for less than twelve months at November 30, 2012
and at December 2, 2011, respectively.
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated
by investment category, that have been in a continuous unrealized loss position for more than twelve months, as of November 30,
2012 and December 2, 2011 (in thousands):
2012
Fair
Value
Corporate bonds and commercial paper ...................... $
Municipal securities.....................................................
Total ................................................................... $
2,999
—
2,999
2011
Gross
Unrealized
Losses
$
$
Gross
Unrealized
Losses
Fair
Value
(1) $
—
(1) $
22,918
2,668
25,586
$
$
(232)
(1)
(233)
There was 1 security and 13 securities in an unrealized loss position for more than twelve months at November 30, 2012
and at December 2, 2011, respectively.
The following table summarizes the cost and estimated fair value of short-term fixed income securities classified as shortterm investments based on stated effective maturities as of November 30, 2012 (in thousands):
Amortized
Cost
Due within one year................................................................................................................ $
Due between one and two years .............................................................................................
Due between two and three years ...........................................................................................
Due after three years...............................................................................................................
Total............................................................................................................................... $
655,597
490,297
673,418
279,301
2,098,613
Estimated
Fair Value
$
$
656,818
495,066
678,481
282,692
2,113,057
We review our debt and marketable equity securities classified as short-term investments on a regular basis to evaluate
whether or not any security has experienced an other-than-temporary decline in fair value. We consider factors such as the length
of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the
issuer and our intent to sell, or whether it is more likely than not we will be required to sell the investment before recovery of the
investment's amortized cost basis. If we believe that an other-than-temporary decline exists in one of these securities, we write
down these investments to fair value. For debt securities, the portion of the write-down related to credit loss would be recorded
to interest and other income, net in our Consolidated Statements of Income. Any portion not related to credit loss would be recorded
to accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our Consolidated
Balance Sheets. For equity securities, the write-down would be recorded to investment gains (losses), net in our Consolidated
Statements of Income. During both fiscal 2012 and fiscal 2011, we recorded immaterial other-than-temporary impairment losses
associated with our marketable equity securities and did not consider any of our debt securities to be other-than-temporarily
impaired. During fiscal 2010, we did not consider any of our investments to be other-than-temporarily impaired.
NOTE 4. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain financial assets and liabilities at fair value on a recurring basis. There have been no transfers between
fair value measurement levels during the year ended November 30, 2012.
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of our financial assets and liabilities at November 30, 2012 was determined using the following inputs (in
thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Total
Assets:
Cash equivalents:
Corporate bonds and commercial paper............... $
Money market mutual funds and repurchase
agreements........................................................
Municipal securities .............................................
Time deposits .......................................................
Short-term investments:
Corporate bonds and commercial paper...............
Foreign government securities .............................
Marketable equity securities.................................
Municipal securities .............................................
Time deposits .......................................................
U.S. agency securities ..........................................
U.S. Treasury securities........................................
Prepaid expenses and other current assets:
Foreign currency derivatives ................................
Other assets:
Deferred compensation plan assets ......................
Total assets................................................................... $
3,998
$
—
Significant
Other
Observable
Inputs
(Level 2)
$
3,998
Significant
Unobservable
Inputs
(Level 3)
$
—
1,171,270
3,895
45,118
1,171,270
—
45,118
—
3,895
—
—
—
—
1,070,440
6,952
244
180,525
20,113
504,191
330,836
—
—
244
—
—
—
—
1,070,440
6,952
—
180,525
20,113
504,191
330,836
—
—
—
—
—
—
—
13,513
—
13,513
—
15,094
3,366,189
$
436
1,217,068
$
14,658
2,149,121
$
—
—
998
998
$
$
—
—
$
$
998
998
$
$
—
—
Liabilities:
Accrued expenses:
Foreign currency derivatives ................................ $
Total liabilities............................................................. $
94
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of our financial assets and liabilities at December 2, 2011 was determined using the following inputs (in
thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Total
Assets:
Cash equivalents:
Commercial paper ................................................ $
Money market mutual funds and repurchase
agreements........................................................
Time deposits .......................................................
U.S. agency securities ..........................................
U.S. Treasury securities........................................
Short-term investments:
Corporate bonds and commercial paper...............
Foreign government securities .............................
Marketable equity securities.................................
Municipal securities .............................................
U.S. agency securities ..........................................
U.S. Treasury securities........................................
Prepaid expenses and other current assets:
Foreign currency derivatives ................................
Other assets:
Deferred compensation plan assets ......................
Total assets................................................................... $
15,948
$
—
Significant
Other
Observable
Inputs
(Level 2)
$
15,948
Significant
Unobservable
Inputs
(Level 3)
$
—
687,152
15,694
2,500
7,000
687,152
15,694
—
—
—
—
2,500
7,000
—
—
—
—
1,111,537
7,323
12,267
106,355
375,893
308,817
—
—
12,267
—
—
—
1,111,537
7,323
—
106,355
375,893
308,817
—
—
—
—
—
—
25,362
—
25,362
—
12,803
2,688,651
$
523
715,636
$
12,280
1,973,015
$
—
—
3,881
3,881
$
$
—
—
$
$
3,881
3,881
$
$
—
—
Liabilities:
Accrued expenses:
Foreign currency derivatives ................................ $
Total liabilities............................................................. $
See Note 3 for further information regarding the fair value of our financial instruments.
Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers with
a minimum credit rating of BBB and a weighted average credit rating of AA-. We value these securities based on pricing from
pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted
prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, we classify all of our
fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our
financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by
observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques.
Our procedures include controls to ensure that appropriate fair values are recorded such as comparing prices obtained from multiple
independent sources.
Our deferred compensation plan assets consist of prime money market funds and mutual funds.
95
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We also have direct investments in privately held companies accounted for under the cost method, which are periodically
assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we write
down the investment to its fair value. We estimate fair value of our cost method investments considering available information
such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational
performance and any other readily available market data. During fiscal 2012 and 2011, we determined there were no material
other-than-temporary impairments on our cost method investments.
As of November 30, 2012, the carrying value of our lease receivables approximated fair value, based on Level 2 valuation
inputs which include Treasury rates, LIBOR rates and applicable credit spreads. See Note 15 for further details regarding our
investment in lease receivables. The fair value of our long-term debt was approximately $1.6 billion as of November 30, 2012,
based on Level 2 quoted prices in inactive markets. See Note 16 for further details regarding our debt.
NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES
Hedge Accounting
We recognize derivative instruments and hedging activities as either assets or liabilities in our Consolidated Balance Sheets
and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of
the derivative and whether it is designated and qualifies for hedge accounting.
Economic Hedging—Hedges of Forecasted Transactions
In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. Therefore, we are subject
to exposure from movements in foreign currency rates. We may use foreign exchange option contracts or forward contracts to
hedge certain operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange
contracts, carried at fair value, may have maturities between one and twelve months. The maximum original duration of any
contract is twelve months. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency
denominated revenue in the normal course of business and accordingly, they are not speculative in nature.
We recognize derivative instruments from hedging activities as either assets or liabilities on the balance sheet and measure
them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative
and whether it is designated and qualifies for hedge accounting. To receive hedge accounting treatment, all hedging relationships
are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash
flows on hedged transactions. We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive
income in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we
reclassify the related gain or loss on the cash flow hedge to revenue. In the event the underlying forecasted transaction does not
occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated
other comprehensive income to interest and other income, net in our Consolidated Statements of Income at that time. For fiscal
2012, 2011 and 2010 there were no such gains or losses recognized in interest and other income, net relating to hedges of forecasted
transactions that did not occur.
We evaluate hedge effectiveness at the inception of the hedge prospectively as well as retrospectively and record any
ineffective portion of the hedging instruments in interest and other income, net on our Consolidated Statements of Income. The
net gain (loss) recognized in interest and other income, net for cash flow hedges due to hedge ineffectiveness was insignificant
for fiscal 2012, 2011 and 2010. The time value of purchased derivative instruments is recorded in interest and other income, net
in our Consolidated Statements of Income.
Balance Sheet Hedging—Hedging of Foreign Currency Assets and Liabilities
We also hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce
the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. These derivative instruments
hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the fair value
recorded to interest and other income (expense), net in our Consolidated Statements of Income. These derivative instruments do
not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are
96
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
intended to offset gains and losses on the assets and liabilities being hedged. As of November 30, 2012, total notional amounts of
outstanding contracts were $422.9 million which included the notional equivalent of $209.8 million in Euro, $44.2 million in Yen
and $168.9 million in other foreign currencies. As of December 2, 2011, total notional amounts of outstanding contracts were
$560.1 million which included the notional equivalent of $307.8 million in Euro, $49.3 million in Yen and $203.0 million in other
foreign currencies. At November 30, 2012 and December 2, 2011, the outstanding balance sheet hedging derivatives had maturities
of 180 days or less.
The fair value of derivative instruments on our Consolidated Balance Sheets as of November 30, 2012 and December 2,
2011 was as follows (in thousands):
2012
Fair Value
Asset (1)
Derivatives
2011
Fair Value
Liability (2)
Derivatives
Fair Value
Asset (1)
Derivatives
Fair Value
Liability (2)
Derivatives
Derivatives designated as hedging instruments:
Foreign exchange option contracts(3) ....................... $
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts ........................
Total derivatives .......................................................... $
10,897
$
—
$
19,296
$
—
2,616
13,513
$
998
998
$
6,066
25,362
$
3,881
3,881
_________________________________________
(1)
(2)
(3)
Included in prepaid expenses and other current assets on our Consolidated Balance Sheets.
Included in accrued expenses on our Consolidated Balance Sheets.
Hedging effectiveness expected to be recognized to income within the next twelve months.
The effect of derivative instruments designated as cash flow hedges and of derivative instruments not designated as hedges
in our Consolidated Statements of Income for fiscal 2012, 2011 and 2010 were as follows (in thousands):
2012
Foreign
Exchange
Option
Contracts
Derivatives in cash flow hedging relationships:
Net gain (loss) recognized in OCI, net of tax(1) ........
Net gain (loss) reclassified from accumulated
OCI into income, net of tax(2) ................................
Net gain (loss) recognized in income(3) ....................
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income(4) ....................
$ 23,922
2011
Foreign
Exchange
Forward
Contracts
Foreign
Exchange
Option
Contracts
2010
Foreign
Exchange
Forward
Contracts
Foreign
Exchange
Option
Contracts
Foreign
Exchange
Forward
Contracts
$
—
$ 16,952
$
—
$ 20,325
$
—
$ 30,672 $
$ (29,554) $
—
—
$ 3,749 $
$ (28,796) $
—
—
$ 20,169 $
$ (23,285) $
—
—
$
—
$
8,742
$
—
$ (3,973) $
—
$ 34,168
_________________________________________
(1)
(2)
(3)
(4)
Net change in the fair value of the effective portion classified in other comprehensive income (“OCI”).
Effective portion classified as revenue.
Ineffective portion and amount excluded from effectiveness testing classified in interest and other income (expense), net.
Classified in interest and other income (expense), net.
97
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net gains (losses) recognized in interest and other income (expense), net relating to balance sheet hedging for fiscal 2012,
2011 and 2010 were as follows (in thousands):
2012
Gain (loss) on foreign currency assets and liabilities:
Net realized gain (loss) recognized in other income ..............................................
Net unrealized loss recognized in other income.....................................................
$
Gain (loss) on hedges of foreign currency assets and liabilities:
Net realized gain recognized in other income ........................................................
Net unrealized gain (loss) recognized in other income ..........................................
Net gain (loss) recognized in interest and other income (expense), net ...................
$
2011
2010
(5,899) $
(4,720)
(10,619)
6,604 $
(4,062)
2,542
(11,470)
(12,345)
(23,815)
9,312
(570)
8,742
(1,877) $
4,633
(8,606)
(3,973)
(1,431) $
21,921
12,247
34,168
10,353
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following as of November 30, 2012 and December 2, 2011 (in thousands):
2012
Computers and equipment ............................................................................................
Furniture and fixtures....................................................................................................
Server hardware under capital lease..............................................................................
Capital projects in-progress ..........................................................................................
Leasehold improvements ..............................................................................................
Land ..............................................................................................................................
Buildings .......................................................................................................................
Total...............................................................................................................................
Less accumulated depreciation and amortization .........................................................
Property and equipment, net .......................................................................................
$
$
2011
702,270 $
84,697
35,303
63,980
222,262
114,941
175,222
1,398,675
(734,373)
664,302 $
581,670
75,384
32,151
44,219
206,529
113,960
99,845
1,153,758
(625,930)
527,828
Depreciation and amortization expense of property and equipment for fiscal 2012, 2011 and 2010 was $134.4 million,
$117.5 million and $107.5 million, respectively.
NOTE 7. GOODWILL AND PURCHASED AND OTHER INTANGIBLES
During fiscal years 2012, 2011 and 2010, we modified our segments due to changes in how we operate our business. See
Note 18 for further information regarding our segment changes. Prior year information in the tables below has been reclassified
to reflect these changes.
Goodwill by reportable segment and activity for the years ended November 30, 2012 and December 2, 2011 was as follows
(in thousands):
Digital Media.......................
Digital Marketing ................
Print and Publishing ............
Goodwill............................
2010
Acquisitions
$1,799,514
1,583,738
258,592
$3,641,844
$ 173,811
38,728
—
$ 212,539
(1)
Other
$
$
2011
(833) $1,972,492
(4,292) 1,618,174
(41)
258,551
(5,166) $3,849,217
98
(2)
Acquisitions
$
—
291,422
—
$ 291,422
Other
$
$
2012
(616) $1,971,876
(6,675) 1,902,921
(89)
258,462
(7,380) $4,133,259
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
_________________________________________
(1)
The change includes adjustments to our Day purchase price allocation through the second quarter of fiscal 2011 and foreign
currency translation adjustments. We also recorded adjustments for tax deductions from acquired stock options associated
with our Omniture and Macromedia acquisitions.
(2)
Amounts primarily consist of foreign currency translation adjustments and adjustments for tax deductions from acquired
stock options associated with our Omniture and Macromedia acquisitions.
Purchased and other intangible assets, net by reportable segment as of November 30, 2012 and December 2, 2011 were as
follows (in thousands):
2012
Digital Media ....................................................................................................................................
Digital Marketing..............................................................................................................................
Print and Publishing..........................................................................................................................
Purchased and other intangible assets, net .....................................................................................
$
$
2011
148,215
396,786
35
545,036
$
$
181,888
363,560
78
545,526
Purchased and other intangible assets subject to amortization as of November 30, 2012 and December 2, 2011 were as
follows (in thousands):
Purchased technology...........................
Customer contracts and relationships...
Trademarks...........................................
Acquired rights to use technology........
Localization ..........................................
Other intangibles ..................................
Total other intangible assets .................
Purchased and other intangible
assets, net .......................................
2012
2011
Cost
Accumulated
Amortization
Net
Cost
Accumulated
Amortization
Net
$ (161,538) $
$ (74,214) $
(19,171)
(56,782)
(4,654)
(8,229)
$ (163,050) $
205,036
243,813
34,122
47,620
3,932
10,513
340,000
$
$
$
366,574
318,027
53,293
104,402
8,586
18,742
503,050
$
314,057
433,534
52,734
106,865
9,762
63,906
666,801
$ (91,363) $
$ (229,364) $
(11,217)
(48,137)
(6,591)
(48,660)
$ (343,969) $
222,694
204,170
41,517
58,728
3,171
15,246
322,832
$
869,624
$ (324,588) $
545,036
$
980,858
$ (435,332) $
545,526
$
$
Certain purchased and other intangible assets from prior acquisitions, primarily Macromedia and Omniture, were removed
from the balance sheet as they were fully amortized at the end of fiscal 2012. Amortization expense related to purchased and other
intangible assets was $146.2 million, $131.5 million and $169.7 million for fiscal 2012, 2011 and 2010, respectively. Of these
amounts, for fiscal 2012, 2011 and 2010, $98.3 million, $88.3 million and $97.3 million, respectively, were included in cost of
sales.
Purchased and other intangible assets are amortized over their estimated useful lives of 1 to 13 years. As of November 30,
2012, we expect amortization expense in future periods to be as follows (in thousands):
Purchased
Technology
Fiscal Year
2013....................................................................................................................................... $
2014.......................................................................................................................................
2015.......................................................................................................................................
2016.......................................................................................................................................
2017.......................................................................................................................................
Thereafter ..............................................................................................................................
Total expected amortization expense.................................................................................. $
99
70,613
64,451
49,779
11,505
5,372
3,316
205,036
Other Intangible
Assets
$
$
64,429
56,995
50,977
45,359
40,026
82,214
340,000
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. ACCRUED EXPENSES
Accrued expenses as of November 30, 2012 and December 2, 2011 consisted of the following (in thousands):
2012
Accrued compensation and benefits ....................................................................................... $
Sales and marketing allowances .............................................................................................
Accrued corporate marketing .................................................................................................
Taxes payable..........................................................................................................................
Royalties payable....................................................................................................................
Accrued interest expense ........................................................................................................
Other .......................................................................................................................................
Accrued expenses ................................................................................................................. $
2011
242,887
87,916
39,503
26,164
10,040
20,796
162,834
590,140
$
235,500
58,156
37,757
26,732
18,778
21,010
157,008
554,941
$
Other primarily includes general corporate accruals for local and regional expenses and technical support. Other is also
comprised of deferred rent related to office locations with rent escalations and foreign currency liability derivatives.
NOTE 9. INCOME TAXES
Income before income taxes for fiscal 2012, 2011 and 2010 consisted of the following (in thousands):
2012
Domestic ...................................................................................................................
Foreign......................................................................................................................
Income before income taxes...................................................................................
$
402,723
716,071
$ 1,118,794
2011
$
319,500
715,730
$ 1,035,230
2010
$
$
283,819
659,332
943,151
Domestic income before taxes is significantly lower than foreign income before taxes due to certain accounting charges
that our foreign subsidiaries are not required to bear under foreign accounting standards. These charges do not lower our domestic
income subject to U.S. tax.
The provision for income taxes for fiscal 2012, 2011 and 2010 consisted of the following (in thousands):
Current:
United States federal ..............................................................................................
Foreign ...................................................................................................................
State and local ........................................................................................................
Total current..............................................................................................................
Deferred:
United States federal ..............................................................................................
Foreign ...................................................................................................................
State and local ........................................................................................................
Total deferred............................................................................................................
Tax expense attributable to employee stock plans....................................................
Provision for income taxes .....................................................................................
100
$
$
2012
2011
2010
162,574 $
59,255
(2,244)
219,585
104,587 $
41,724
(8,769)
137,542
260,118
44,869
31,866
336,853
69,374
(6,082)
3,142
66,434
—
286,019 $
(158,350)
60,617
(6,475)
8,262
(13,606)
(14,665)
(179,490)
55,273
9,568
11,108
202,383 $ 168,471
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total income tax expense differs from the expected tax expense (computed by multiplying the U.S. federal statutory rate
of 35% by income before income taxes) as a result of the following (in thousands):
2012
Computed “expected” tax expense ...........................................................................
State tax expense, net of federal benefit ...................................................................
Tax credits.................................................................................................................
Differences between statutory rate and foreign effective tax rate ............................
Change in deferred tax asset valuation allowance....................................................
Stock-based compensation (net of tax deduction) ....................................................
Resolution of income tax examinations....................................................................
Domestic manufacturing deduction benefit..............................................................
U.S. tax benefits related to state income tax ruling ..................................................
Tax charge for licensing acquired company technology to foreign subsidiaries......
Other, net ..................................................................................................................
Provision for income taxes .....................................................................................
2011
2010
$
391,578 $ 362,331 $ 330,103
11,320
8,436
13,444
(1,226)
(30,283)
(1,317)
(122,999)
(135,178)
(129,063)
(2,144)
(493)
1,408
10,976
3,983
4,181
(26,687)
(39,753)
—
(17,010)
(14,350)
(14,630)
(22,320)
—
—
38,849
31,298
—
(1,041)
3,362
4,098
$ 286,019 $ 202,383 $ 168,471
Deferred Tax Assets and Liabilities
The tax effects of the temporary differences that gave rise to significant portions of the deferred tax assets and liabilities
as of November 30, 2012 and December 2, 2011 are presented below (in thousands):
Deferred tax assets:
Acquired technology ......................................................................................................................
Reserves and accruals.....................................................................................................................
Deferred revenue ............................................................................................................................
Unrealized losses on investments...................................................................................................
Stock-based compensation .............................................................................................................
Net operating loss of acquired companies......................................................................................
Credit carryforwards ......................................................................................................................
Capitalized expenses ......................................................................................................................
Other...............................................................................................................................................
Total gross deferred tax assets...................................................................................................
Deferred tax asset valuation allowance ..........................................................................................
Total deferred tax assets ............................................................................................................
Deferred tax liabilities:
Depreciation and amortization .......................................................................................................
Undistributed earnings of foreign subsidiaries...............................................................................
Acquired intangible assets..............................................................................................................
Total deferred tax liabilities.......................................................................................................
Net deferred tax liabilities ................................................................................................................
$
2012
2011
3,890 $
71,888
9,941
17,482
85,179
16,257
31,172
4,023
5,165
244,997
(28,247)
216,750
794
95,077
11,999
16,483
92,817
13,481
24,771
—
6,298
261,720
(5,198)
256,522
(81,034)
(74,048)
(187,528)
(125,173)
(153,757)
(146,940)
(422,319)
(346,161)
$ (205,569) $ (89,639)
The deferred tax assets and liabilities for fiscal 2012 and fiscal 2011 include amounts related to various acquisitions. The
total change in deferred tax assets and liabilities in fiscal 2012 includes changes that are recorded to OCI, additional paid-in capital,
goodwill and retained earnings.
We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered
permanently reinvested outside the U.S. To the extent that the foreign earnings previously treated as permanently reinvested are
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. As of November 30,
2012, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $2.9 billion.
The unrecognized deferred tax liability for these earnings is approximately $0.8 billion.
As of November 30, 2012, we have U.S. net operating loss carryforwards of approximately $33.7 million for federal and
$77.7 million for state. We also have federal, state and foreign tax credit carryforwards of approximately $1.9 million, $18.0
million and $17.6 million, respectively. The net operating loss carryforward assets, federal tax credits and foreign tax credits will
expire in various years from fiscal 2017 through 2032. The state tax credit carryforwards can be carried forward indefinitely. The
net operating loss carryforward assets and certain credits are subject to an annual limitation under Internal Revenue Code Section
382, but are expected to be fully realized.
In addition, we have been tracking certain deferred tax attributes of $45.0 million which have not been recorded in the
financial statements pursuant to accounting standards related to stock-based compensation. These amounts are no longer included
in our gross or net deferred tax assets. Pursuant to these standards, the benefit of these deferred tax assets will be recorded to equity
if and when they reduce taxes payable.
As of November 30, 2012, a valuation allowance of $28.2 million has been established for certain deferred tax assets related
to the impairment of investments and certain foreign assets. For fiscal 2012, the total change in the valuation allowance was $23.0
million, of which $2.1 million was recorded as a tax benefit through the income statement.
Accounting for Uncertainty in Income Taxes
During fiscal 2012 and 2011, our aggregate changes in our total gross amount of unrecognized tax benefits are summarized
as follows (in thousands):
Beginning balance ............................................................................................................................
Gross increases in unrecognized tax benefits – prior year tax positions........................................
Gross decreases in unrecognized tax benefits – prior year tax positions .......................................
Gross increases in unrecognized tax benefits – current year tax positions ....................................
Settlements with taxing authorities ................................................................................................
Lapse of statute of limitations ........................................................................................................
Foreign exchange gains and losses.................................................................................................
Ending balance..................................................................................................................................
$
$
2012
2011
163,607 $
1,038
—
23,771
(1,754)
(25,387)
(807)
160,468 $
156,925
11,901
(4,154)
32,420
(29,101)
(3,825)
(559)
163,607
As of November 30, 2012, the combined amount of accrued interest and penalties related to tax positions taken on our tax
returns and included in non-current income taxes payable was approximately $12.5 million.
We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. We are subject
to the continual examination of our income tax returns by the IRS and other domestic and foreign tax authorities. Our major tax
jurisdictions are the U.S., Ireland and California. For California, Ireland and the U.S., the earliest fiscal years open for examination
are 2005, 2006 and 2008, respectively. We regularly assess the likelihood of outcomes resulting from these examinations to
determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the
current examinations. We believe such estimates to be reasonable; however, there can be no assurance that the final determination
of any of these examinations will not have an adverse effect on our operating results and financial position.
In August 2011, a Canadian income tax examination covering our fiscal years 2005 through 2008 was completed. Our
accrued tax and interest related to these years was approximately $35 million and was previously reported in long-term income
taxes payable. We reclassified approximately $17 million to short-term income taxes payable and decreased deferred tax assets
by approximately $18 million in conjunction with the aforementioned resolution.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments
that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of
current and non-current assets and liabilities. The Company believes that before the end of fiscal 2013, it is reasonably possible
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both.
Given the uncertainties described above, we can only determine a range of estimated potential decreases in underlying unrecognized
tax benefits ranging from $0 to approximately $5 million. These amounts could decrease income tax expense under current GAAP
related to income taxes.
NOTE 10. RESTRUCTURING
Fiscal 2011 Restructuring Plan
In the fourth quarter of fiscal 2011, we initiated a restructuring plan consisting of reductions in workforce and the
consolidation of facilities in order to better align our resources around our Digital Media and Digital Marketing strategies.
During fiscal 2012, we continued to implement restructuring activities under this plan. We vacated approximately 64,000
square feet of sales and/or research and development facilities in Canada, the Czech Republic, Germany, Ireland, Israel and the
United Kingdom. We accrued $11.3 million for the fair value of our future contractual obligations under those operating leases
as of the dates we ceased to use the leased properties using our estimated credit-adjusted risk-free interest rates ranging from
approximately 1% to 4%. This amount is net of the fair value of future estimated sublease income of approximately $3.3 million.
Total costs incurred for termination benefits through fiscal 2012 were $56.8 million which included favorable adjustments of $21.8
million arising from revisions to severance cost estimates that were made in connection with the fourth quarter fiscal 2011
restructuring plan. Total costs incurred to date and expected to be incurred for closing redundant facilities are $14.6 million as all
facilities under this plan have been exited as of November 30, 2012.
Other Restructuring Plans
Other restructuring plans include other Adobe plans and other plans associated with certain of our acquisitions that are
substantially complete. We continue to make cash outlays to settle obligations under these plans, however the current impact to
our consolidated financial statements is not significant. As of November 30, 2012, the total remaining balance under our other
restructuring plans was $1.0 million for termination benefits and $9.7 million for closing redundant facilities, of which
approximately $8.0 million relates to our Fiscal 2009 Restructuring Plan. Our other restructuring plans consist of the following:
•
Fiscal 2009 Restructuring Plan—In the fourth quarter of fiscal 2009, in order to appropriately align our costs in
connection with our fiscal 2010 operating plan, we initiated a restructuring plan consisting of reductions in workforce
and the consolidation of facilities. The restructuring activities related to this program affected only those employees
and facilities that were associated with Adobe prior to the acquisition of Omniture on October 23, 2009.
•
Omniture Restructuring Plan—We completed our acquisition of Omniture on October 23, 2009. In the fourth quarter
of fiscal 2009, we initiated a plan to restructure the pre-merger operations of Omniture to eliminate certain duplicative
activities, focus our resources on future growth opportunities and reduce our cost structure.
•
Fiscal 2008 Restructuring Plan—In the fourth quarter of fiscal 2008, we initiated a restructuring program consisting
of reductions in workforce and the consolidation of facilities, in order to reduce our operating costs and focus our
resources on key strategic priorities.
Summary of Restructuring Plans
The following table sets forth a summary of restructuring activities related to all of our restructuring plans described above
during fiscal 2012 (in thousands):
December 2,
2011
Fiscal 2011 Plan:
Termination benefits............................ $
Cost of closing redundant facilities .....
Other Restructuring Plans:
Termination benefits............................
Cost of closing redundant facilities .....
Total restructuring plans ........................ $
72,817
2,995
1,548
11,019
88,379
Costs
Incurred
$
—
11,097
810
5,536
17,443
$
103
Cash
Payments
$
$
Other
Adjustments*
November 30,
2012
(49,551) $
(4,662)
(22,018) $
193
1,248
9,623
(977)
(7,940)
(63,130) $
(390)
1,073
(21,142) $
991
9,688
21,550
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
_________________________________________
(*)
Included in Other Adjustments are foreign currency translation adjustments and Goodwill adjustments of $0.4 million
each.
Accrued restructuring charges of approximately $21.6 million at November 30, 2012 includes $9.3 million recorded in
accrued restructuring, current and $12.3 million related to long-term facilities obligations recorded in accrued restructuring, noncurrent on our Consolidated Balance Sheets. We expect to pay accrued termination benefits through the second half of fiscal 2013
and facilities-related liabilities under contract through fiscal 2021.
NOTE 11. BENEFIT PLANS
Retirement Savings Plan
In 1987, we adopted an Employee Investment Plan, qualified under Section 401(k) of the Internal Revenue Code, which is
a retirement savings plan covering substantially all of our U.S. employees, now referred to as the Adobe 401(k) Retirement Savings
Plan. Under the plan, eligible employees may contribute up to 65% of their pretax or after-tax salary, subject to the Internal Revenue
Service annual contribution limits. In fiscal 2012, we matched 50% of the first 6% of the employee’s eligible compensation. We
contributed $19.4 million, $19.6 million and $17.9 million in fiscal 2012, 2011 and 2010, respectively. We can terminate matching
contributions at our discretion.
Deferred Compensation Plan
On September 21, 2006, the Board of Directors approved the Adobe Systems Incorporated Deferred Compensation Plan,
effective December 2, 2006 (the “Deferred Compensation Plan”). The Deferred Compensation Plan is an unfunded, non-qualified,
deferred compensation arrangement under which certain executives and members of the Board of Directors are able to defer a
portion of their annual compensation. Participants may elect to contribute up to 75% of their base salary and 100% of other specified
compensation, including commissions, bonuses, performance-based and time-based restricted stock units, and directors’
fees. Participants are able to elect the payment of benefits to begin on a specified date at least three years after the end of the plan
year in which the election is made in the form of a lump sum or annual installments over five, ten or fifteen years. Upon termination
of a participant’s employment with Adobe, such participant will receive a distribution in the form of a lump sum payment. All
distributions will be made in cash, except for deferred performance-based and time-based restricted stock units which will be
settled in stock. As of November 30, 2012 and December 2, 2011, the invested amounts under the Deferred Compensation Plan
total $15.1 million and $12.8 million, respectively and were recorded as other assets on our Consolidated Balance Sheets. As of
November 30, 2012 and December 2, 2011, $16.4 million and $13.2 million, respectively, was recorded as long-term liabilities to
recognize undistributed deferred compensation due to employees.
NOTE 12. STOCK-BASED COMPENSATION
We have the following stock-based compensation plans and programs:
Restricted Stock Plans
We grant restricted stock units to all eligible employees under our 2003 Equity Incentive Plan, as amended (“2003 Plan”),
our 2005 Equity Incentive Assumption Plan (“2005 Assumption Plan”) and our Amended 1994 Performance and Restricted Stock
Plan (“Restricted Stock Plan”). Restricted stock units granted under these plans generally vest over four years, the majority of
which vest 25% annually, and certain grants have other vesting periods approved by our Board of Directors or an authorized
committee of the Board of Directors.
We grant performance awards to officers and key employees under our Restricted Stock Plan as well as our 2003 Plan.
Performance awards granted under these plans after fiscal year 2009 vest annually over three years. Performance awards granted
prior to fiscal year 2009 vest annually over four years.
As of November 30, 2012, we had reserved 136.9 million and 5.5 million shares of common stock for issuance under our
2003 Plan and 2005 Assumption Plan, respectively and had 36.6 million and 1.4 million shares available for grant under our 2003
Plan and 2005 Assumption Plan, respectively. As of November 30, 2012, we had reserved 16.0 million shares of our common
stock for issuance under the Restricted Stock Plan and approximately 12 thousand shares were available for grant.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employee Stock Purchase Plan
Our 1997 Employee Stock Purchase Plan (“ESPP”) allows eligible employee participants to purchase shares of our common
stock at a discount through payroll deductions. The ESPP consists of a twenty-four month offering period with four six-month
purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of our
common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower. The ESPP
will continue until the earlier of (i) termination by the Board or (ii) the date on which all of the shares available for issuance under
the plan have been issued.
As of November 30, 2012, we had reserved 93.0 million shares of our common stock for issuance under the ESPP and
approximately 19.2 million shares remain available for future issuance.
Stock Option Plans
Our stock option program is a long-term retention program that is intended to attract, retain and provide incentives for
talented employees, officers and directors, and to align stockholder and employee interests. We grant options from the 2003 Plan
and the 2005 Assumption Plan. Under these plans, options can be granted to all employees, including executive officers, outside
consultants and non-employee directors. These plans will continue until the earlier of (i) termination by the Board or (ii) the date
on which all of the shares available for issuance under the plan have been issued and restrictions on issued shares have lapsed.
Option vesting periods are generally four years for all of these plans. Options granted under these plans generally expire seven
years from the effective date of grant.
In fiscal 2012, the Executive Compensation Committee of Adobe's Board of Directors eliminated the use of stock option
grants for all employees and stock option grants to non-employee directors were minimal.
Performance Share Programs
Effective January 24, 2012, the Executive Compensation Committee adopted the 2012 Performance Share Program (the
“2012 Program”). The purpose of the 2012 Program is to align key management and senior leadership with stockholders’ interests
and to retain key employees. The measurement period for the 2012 Program is our fiscal 2012 year. Members of our executive
management and other key senior management are participating in the 2012 Program. Awards granted under the 2012 Program
are granted in the form of performance shares pursuant to the terms of our 2003 Equity Incentive Plan. If pre-determined Adobe
specific and/or market-based performance goals are met, shares of stock will be granted to the recipient, with one third vesting on
the later of the date of certification of achievement or the first anniversary date of the grant, and the remaining two thirds vesting
evenly on the following two annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe.
Participants in the 2012 Program generally have the ability to receive up to 150% of the target number of shares originally granted.
Issuance of Shares
Upon exercise of stock options, vesting of restricted stock and performance shares, and purchases of shares under the ESPP,
we will issue treasury stock. If treasury stock is not available, common stock will be issued. In order to minimize the impact of
on-going dilution from exercises of stock options and vesting of restricted stock and performance shares, we instituted a stock
repurchase program. See Note 13 for information regarding our stock repurchase programs.
Valuation of Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award. We use the Black-Scholes
option pricing model to determine the fair value of stock options and ESPP shares. The determination of the fair value of stockbased payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the
expected term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and any
expected dividends.
We estimate the expected term of options granted by calculating the average term from our historical stock option exercise
experience. We estimate the volatility of our common stock by using implied volatility in market traded options. Our decision to
use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that
implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
that we use in the option valuation model on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to
the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an
expected dividend yield of zero in the option valuation model. We are required to estimate forfeitures at the time of grant and
revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate
pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
The assumptions used to value our option grants were as follows:
2012
Expected life (in years) .................................................................
Volatility........................................................................................
Risk free interest rate ....................................................................
3.9 - 4.2
31 - 34%
0.54 - .71%
Fiscal Years
2011
3.8 - 4.2
30 - 41%
0.64 - 1.92%
2010
3.8 - 5.1
29 - 36%
1.04 - 2.66%
The expected term of ESPP shares is the average of the remaining purchase periods under each offering period. The
assumptions used to value employee stock purchase rights were as follows:
Fiscal Years
2012
Expected life (in years) .................................................................
Volatility........................................................................................
Risk free interest rate ....................................................................
0.5 - 2.0
30 - 36%
0.06 - 0.30%
2011
0.5 - 2.0
30 - 34%
0.10 - 0.61%
2010
0.5 - 2.0
32 - 40%
0.18 - 1.09%
We recognize the estimated compensation cost of restricted stock awards and restricted stock units, net of estimated
forfeitures, over the vesting term. The estimated compensation cost is based on the fair value of our common stock on the date of
grant.
We recognize the estimated compensation cost of performance shares, net of estimated forfeitures. The awards are earned
upon attainment of identified performance goals, some of which contain discretionary metrics. As such, these awards are remeasured based on our traded stock price at the end of each reporting period. If the discretion is removed, the award will be
classified as a fixed equity award. The fair value of the awards will be based on the measurement date, which is the date the award
becomes fixed. The awards will be subsequently amortized over the longer of the remaining performance or service period.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary of Stock Options
Option activity under our stock option program for fiscal years ended 2012, 2011 and 2010 was as follows (shares in
thousands):
Outstanding Options
Weighted
Average
Exercise
Price
Number of
Shares
November 27, 2009 ................................................................................................................
Granted .................................................................................................................................
Exercised ..............................................................................................................................
Cancelled ..............................................................................................................................
Increase due to acquisition ...................................................................................................
December 3, 2010...................................................................................................................
Granted .................................................................................................................................
Exercised ..............................................................................................................................
Cancelled ..............................................................................................................................
Increase due to acquisition ...................................................................................................
December 2, 2011...................................................................................................................
Granted .................................................................................................................................
Exercised ..............................................................................................................................
Cancelled ..............................................................................................................................
Increase due to acquisition ...................................................................................................
November 30, 2012 ................................................................................................................
41,251
3,198
(5,196)
(2,908)
730
37,075
4,507
(4,987)
(2,268)
475
34,802
57
(6,754)
(4,692)
1,104
24,517
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
29.45
34.03
20.48
33.94
8.24
30.33
33.60
21.02
33.85
2.25
31.47
32.19
23.61
33.07
3.23
32.09
The weighted average fair values of options granted during fiscal 2012, 2011 and 2010 were $8.50, $8.82 and $9.17,
respectively.
The total intrinsic value of options exercised during fiscal 2012, 2011 and 2010 was $62.6 million, $59.4 million and $72.7
million, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the
exercise price of the shares.
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding stock options outstanding at November 30, 2012, December 2, 2011 and December 3, 2010 is
summarized below:
Weighted
Average
Exercise
Price
Number of
Shares
(thousands)
2012
Options outstanding.....................................................
Options vested and expected to vest............................
Options exercisable .....................................................
2011
Options outstanding.....................................................
Options vested and expected to vest............................
Options exercisable .....................................................
2010
Options outstanding.....................................................
Options vested and expected to vest............................
Options exercisable .....................................................
Weighted
Average
Remaining
Contractual
Life
(years)
Aggregate
Intrinsic
Value(*)
(millions)
24,517
24,158
20,668
$
$
$
32.09
32.15
33.06
2.74
2.70
2.27
$
$
$
103.3
100.9
73.6
34,802
33,856
26,622
$
$
$
31.47
31.52
32.31
3.24
3.17
2.56
$
$
$
68.0
65.6
42.1
37,075
35,961
27,763
$
$
$
30.33
30.42
31.17
3.62
3.56
3.06
$
$
$
116.3
111.0
72.7
_________________________________________
(*)
The intrinsic value is calculated as the difference between the market value as of the end of the fiscal period and the exercise
price of the shares. As reported by the NASDAQ Global Select Market, the market values as of November 30, 2012,
December 2, 2011 and December 3, 2010 were $34.61, $27.11 and $29.14, respectively.
All stock options granted to current executive officers are made after a review by and with the approval of the Executive
Compensation Committee of the Board of Directors.
Summary of Employee Stock Purchase Plan Shares
The weighted average subscription date fair value of shares under the ESPP during fiscal 2012, 2011 and 2010 were $9.09,
$9.01 and $7.43, respectively. Employees purchased 3.2 million shares at an average price of $23.81, 3.7 million shares at an
average price of $23.48, and 3.3 million shares at an average price of $20.19, respectively, for fiscal 2012, 2011 and 2010. The
intrinsic value of shares purchased during fiscal 2012, 2011 and 2010 was $22.8 million, $28.9 million and $33.9 million,
respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase
price of the shares.
Summary of Restricted Stock Units
Restricted stock unit activity for fiscal years 2012, 2011 and 2010 was as follows (in thousands):
2012
Beginning outstanding balance ..................................................................................
Awarded.....................................................................................................................
Released .....................................................................................................................
Forfeited.....................................................................................................................
Increase due to acquisition.........................................................................................
Ending outstanding balance .......................................................................................
16,871
9,431
(5,854)
(2,147)
114
18,415
2011
13,890
8,180
(3,819)
(1,587)
207
16,871
2010
10,433
7,340
(2,589)
(1,294)
—
13,890
The weighted average grant date fair values of restricted stock units granted during fiscal 2012, 2011 and 2010 were $31.36,
$33.10 and $33.47, respectively. The total fair value of restricted stock units vested during fiscal 2012, 2011 and 2010 was $180.1
million, $123.3 million and $84.1 million, respectively.
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Information regarding restricted stock units outstanding at November 30, 2012, December 2, 2011 and December 3, 2010
is summarized below:
Number of
Shares
(thousands)
2012
Restricted stock units outstanding.............................................................
Restricted stock units vested and expected to vest ...................................
2011
Restricted stock units outstanding.............................................................
Restricted stock units vested and expected to vest ...................................
2010
Restricted stock units outstanding.............................................................
Restricted stock units vested and expected to vest ...................................
Weighted
Average
Remaining
Contractual
Life
(years)
Aggregate
Intrinsic
Value(*)
(millions)
18,415
16,289
1.37
1.26
$
$
637.3
562.8
16,871
14,931
1.35
1.25
$
$
457.4
404.3
13,890
11,185
1.54
1.38
$
$
404.8
325.7
_________________________________________
(*)
The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global
Select Market, the market values as of November 30, 2012, December 2, 2011 and December 3, 2010 were $34.61, $27.11
and $29.14, respectively.
Summary of Performance Shares
The following table sets forth the summary of performance share activity under our 2012 Program for the fiscal year ended
November 30, 2012 (in thousands):
Shares
Granted
Beginning outstanding balance...............................................................................................
Awarded..................................................................................................................................
Forfeited..................................................................................................................................
Ending outstanding balance....................................................................................................
—
1,125
(23)
1,102
Maximum
Shares Eligible
to Receive
—
1,652
(34)
1,618
In the first quarter of fiscal 2012, the Executive Compensation Committee certified the actual performance achievement of
participants in the 2011 Performance Share Program (the “2011 Program”). Based upon the achievement of goals outlined in the
2011 Program, participants had the ability to receive up to 150% of the target number of shares originally granted. Actual
performance resulted in participants achieving 130% of target or approximately 0.5 million shares for the 2011 Program. One third
of the shares under the 2011 Program vested in the first quarter of fiscal 2012 and the remaining two thirds vest evenly on the
following two annual anniversary dates of the grant, contingent upon the recipient's continued service to Adobe.
In the first quarter of fiscal 2011, the Executive Compensation Committee certified the actual performance achievement of
participants in the 2010 Performance Share Program (the “2010 Program”). Based upon the achievement of goals outlined in the
2010 Program, participants had the ability to receive up to 150% of the target number of shares originally granted. Actual
performance resulted in participants achieving 135% of target or approximately 0.3 million shares for the 2010 Program. One third
of the shares under the 2011 Program vested in the first quarter of fiscal 2012 and the remaining two thirds vest evenly on the
following two annual anniversary dates of the grant, contingent upon the recipient's continued service to Adobe.
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The following table sets forth the summary of performance share activity under our 2007, 2008, 2010 and 2011 programs,
based upon share awards actually achieved, for the fiscal years ended November 30, 2012, December 2, 2011 and December 3,
2010 (in thousands):
2012
Beginning outstanding balance ..................................................................................
Achieved ....................................................................................................................
Released .....................................................................................................................
Forfeited.....................................................................................................................
Ending outstanding balance .......................................................................................
2011
405
492
(464)
(45)
388
2010
557
337
(436)
(53)
405
950
—
(350)
(43)
557
The performance metrics under the 2009 Performance Share program were not achieved and therefore no shares were
awarded.
The total fair value of performance awards vested during fiscal 2012, 2011 and 2010 was $14.4 million, $14.8 million and
$12.0 million, respectively.
Information regarding performance shares outstanding at November 30, 2012, December 2, 2011 and December 3, 2010 is
summarized below:
Number of
Shares
(thousands)
2012
Performance shares outstanding................................................................
Performance shares vested and expected to vest.......................................
2011
Performance shares units outstanding.......................................................
Performance shares vested and expected to vest.......................................
2010
Performance shares units outstanding.......................................................
Performance shares vested and expected to vest.......................................
Weighted
Average
Remaining
Contractual
Life
(years)
Aggregate
Intrinsic
Value(*)
(millions)
388
369
0.54
0.51
$
$
13.4
12.7
405
390
0.41
0.39
$
$
11.0
10.4
557
514
0.58
0.53
$
$
16.2
14.8
_________________________________________
(*)
The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global
Select Market, the market values as of November 30, 2012, December 2, 2011 and December 3, 2010 were $34.61, $27.11
and $29.14, respectively.
Grants to Non-Employee Directors
The Directors Plan (and starting in fiscal 2008, the 2003 Plan) provides for the granting of nonqualified stock options to
non-employee directors. Options granted before November 29, 2008 vest over four years: 25% on the day preceding each of our
next four annual meetings and have a ten-year term. Starting in fiscal 2009, the initial equity grant to a new non-employee director
is a restricted stock unit award having an aggregate value of $0.5 million based on the average stock price over the 30 calendar
days ending on the day before the date of grant. The initial equity award vests over 2 years, 50% on the day preceding each of our
next 2 annual meetings. For the annual equity grant, a non-employee director can elect to receive 100% options, 100% restricted
stock units or 50% of each and shall have an aggregate value of $0.2 million as based on the average stock price over the 30
calendar days ending on the day before the date of grant. The target grant value converted to stock options is based on a 1:3
conversion of restricted stock units to stock options. Annual equity awards granted on or after November 29, 2008 vest 100% on
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the day preceding the next annual meeting. Options granted on or after November 29, 2008 have a seven-year term. The exercise
price of the options that are issued is equal to the fair market value of our common stock on the date of grant.
Options granted to directors for fiscal 2012, 2011 and 2010 were as follows (shares in thousands):
2012
Options granted to existing directors .........................................................................
Exercise price ............................................................................................................. $
2011
43
33.18
$
2010
85
33.23
$
18
33.82
Restricted stock units granted to directors for fiscal 2012, 2011 and 2010 were as follows (in thousands):
2012
Restricted stock units granted to existing directors....................................................
Restricted stock units granted to new directors..........................................................
2011
42
41
2010
28
—
48
—
Compensation Costs
With the exception of performance shares, stock-based compensation expense is recognized on a straight-line basis over
the requisite service period of the entire award, which is generally the vesting period. For performance shares, expense is recognized
on a straight-line basis over the requisite service period for each vesting tranche of the award.
As of November 30, 2012, there was $456.3 million of unrecognized compensation cost, adjusted for estimated forfeitures,
related to non-vested stock-based awards which will be recognized over a weighted average period of 2.2 years. Total unrecognized
compensation cost will be adjusted for future changes in estimated forfeitures.
Total stock-based compensation costs that have been included in our Consolidated Statements of Income for the fiscal years
ended November 30, 2012, December 2, 2011 and December 3, 2010 were as follows (in thousands):
Income Statement Classifications
Cost of
Revenue–
Subscription
Cost of
Revenue–
Services and
Support
Research and
Development
Sales and
Marketing
General and
Administrative
Total(1)
Option Grants and Stock
Purchase Rights
2012................................................... $
2011................................................... $
2010................................................... $
2,840
936
1,265
$
$
$
4,130
4,716
1,251
$
$
$
24,823
28,132
37,221
$
$
$
31,379
31,754
40,983
$
$
$
15,455
20,605
21,111
$
$
$
78,627
86,143
101,831
3,100
1,521
1,422
$
$
$
9,461
8,607
1,065
$
$
$
83,349
79,427
51,387
$
$
$
76,359
68,485
52,253
$
$
$
47,606
41,920
23,128
$
$
$
219,875
199,960
129,255
Restricted Stock and Performance
Share Awards
2012................................................... $
2011................................................... $
2010................................................... $
_________________________________________
(1)
During fiscal 2012, 2011 and 2010, we recorded tax benefits of $47.1 million, $58.3 million and $61.5 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13. STOCKHOLDERS’ EQUITY
Comprehensive Income
The following table sets forth the activity for each component of comprehensive income, net of related taxes, for fiscal
2012, 2011 and 2010 (in thousands):
2012
2011
2010
Increase/(Decrease)
Net income................................................................................................................
Other comprehensive income:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities .................................
Reclassification adjustment for gains on available-for-sale
securities recognized during the period.........................................................
Subtotal available-for-sale securities .......................................................
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments..........................................
Reclassification adjustment for gains on derivative
instruments recognized during the period .....................................................
Subtotal derivatives designated as hedging
instruments..........................................................................................
Foreign currency translation adjustments ..............................................................
Other comprehensive income ...................................................................................
Total comprehensive income, net of taxes................................................................
$
832,775
$
832,847
774,680
11,297
(1,795)
(1,211)
(2,874)
8,423
(1,834)
(3,629)
(2,959)
(4,170)
23,922
16,952
20,325
(30,672)
(3,749)
(20,169)
(6,750)
(911)
$
$
762
833,537
13,203
2,948
12,522
845,369
$
156
(3,004)
(7,018)
$
767,662
The following table sets forth the taxes related to each component of OCI for fiscal 2012, 2011 and 2010 (in thousands):
2012
Available-for-sale securities .....................................................................................
Foreign currency translation adjustments.................................................................
$
$
13
1,169
2011
$
$
700
2,483
2010
$
$
495
275
Taxes related to derivative instruments were zero for all fiscal years based on the tax jurisdiction where the derivative
instruments were executed.
The following table sets forth the components of accumulated other comprehensive income, net of related taxes, for fiscal
2012 and 2011 (in thousands):
2012
2011
Net unrealized gains on available-for-sale securities:
Unrealized gains on available-for-sale securities................................................................. $
Unrealized losses on available-for-sale securities................................................................
14,698 $
(259)
10,810
(4,794)
Total net unrealized gains on available-for-sale securities..............................................
Net unrealized gains on derivative instruments designated as hedging instruments..............
Cumulative foreign currency translation adjustments ............................................................
Total accumulated other comprehensive income, net of taxes ............................................... $
14,439
6,604
9,669
30,712
6,016
13,354
10,580
29,950
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the components of foreign currency translation adjustments for fiscal 2012, 2011 and 2010
(in thousands):
2012
Beginning balance ....................................................................................................
Foreign currency translation adjustments.................................................................
Income tax effect relating to translation adjustments for
undistributed foreign earnings ..............................................................................
Ending balance..........................................................................................................
$
$
2011
10,580 $
(2,225)
1,314
9,669
$
7,632
5,156
2010
$
(2,208)
10,580 $
10,640
(4,144)
1,136
7,632
Stock Repurchase Program
To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock
issuances, we repurchase shares in the open market and also enter into structured repurchase agreements with third-parties.
Authorization to repurchase shares to cover on-going dilution was not subject to expiration. However, this repurchase
program was limited to covering net dilution from stock issuances and was subject to business conditions and cash flow requirements
as determined by our Board of Directors from time to time.
During the third quarter of fiscal 2010, our Board of Directors approved an amendment to our stock repurchase program
authorized in April 2007 from a non-expiring share-based authority to a time-constrained dollar-based authority. As part of this
amendment, the Board of Directors granted authority to repurchase up to $1.6 billion in common stock through the end of fiscal
2012. During the second quarter of fiscal 2012, we exhausted our $1.6 billion authority granted by our Board of Directors in fiscal
2010.
In April 2012, the Board of Directors approved a new stock repurchase program granting authority to repurchase up to $2.0
billion in common stock through the end of fiscal 2015. The new stock repurchase program approved by our Board of Directors
is similar to our previous $1.6 billion stock repurchase program.
During fiscal 2012, 2011 and 2010, we entered into several structured repurchase agreements with large financial institutions,
whereupon we provided the financial institutions with prepayments totaling $405.0 million, $695.0 million and $850 million,
respectively. Of the $405.0 million of prepayments during fiscal 2012, $100.0 million was under the new $2.0 billion stock
repurchase program and the remaining $305.0 million was under our previous $1.6 billion authority. Of the $850.0 million of
prepayments during fiscal 2010, $250.0 million was under the stock repurchase program prior to the program amendment in the
third quarter of fiscal 2010 and the remaining $600.0 million was under the amended $1.6 billion time-constrained dollar-based
authority. We enter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume
Weighted Average Price (“VWAP”) of our common stock over a specified period of time. We only enter into such transactions
when the discount that we receive is higher than the foregone return on our cash prepayments to the financial institutions. There
were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement
for the financial institutions to return any portion of the prepayment to us.
The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used
to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the
contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon
discount. During fiscal 2012, we repurchased approximately 11.5 million shares at an average price of $32.29 through structured
repurchase agreements entered into during fiscal 2012. During fiscal 2011, we repurchased approximately 21.8 million shares at
an average price of $31.81 through structured repurchase agreements entered into during fiscal 2011. During fiscal 2010, we
repurchased approximately 31.2 million shares at an average price per share of $29.19 through structured repurchase agreements
entered into during fiscal 2009 and fiscal 2010.
For fiscal 2012, 2011 and 2010, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at
the payment date, though only shares physically delivered to us by November 30, 2012, December 2, 2011 and December 3, 2010
were excluded from the computation of earnings per share. As of November 30, 2012, $33.0 million of prepayments remained
under these agreements. As of December 2, 2011 and December 3, 2010, no prepayments remained under these agreements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Subsequent to November 30, 2012, as part of our $2.0 billion stock repurchase program, we entered into a structured stock
repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $100.0 million. This
amount will be classified as treasury stock on our Consolidated Balance Sheets. Upon completion of the $100.0 million stock
repurchase agreement, $1.8 billion remains under our current authority.
NOTE 14. NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of common shares outstanding for the period,
excluding unvested restricted stock. Diluted net income per share is based upon the weighted average common shares outstanding
for the period plus dilutive potential common shares, including unvested restricted stock and stock options using the treasury stock
method.
The following table sets forth the computation of basic and diluted net income per share for fiscal 2012, 2011 and 2010
(in thousands, except per share data):
2012
Net income................................................................................................................
Shares used to compute basic net income per share .................................................
Dilutive potential common shares:
Unvested restricted stock and performance share awards......................................
Stock options ..........................................................................................................
Shares used to compute diluted net income per share ..............................................
Basic net income per share .......................................................................................
Diluted net income per share ....................................................................................
$
$
$
832,775
494,731
7,624
366
502,721
1.68
1.66
2011
$
$
$
832,847
497,469
4,214
2,238
503,921
1.67
1.65
2010
$
$
$
774,680
519,045
3,170
3,609
525,824
1.49
1.47
For fiscal 2012, 2011 and 2010 options to purchase approximately 19.4 million, 27.1 million and 22.4 million shares,
respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $31.98, $30.27
and $31.82, respectively, were not included in the calculation because the effect would have been anti-dilutive.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease certain of our facilities and some of our equipment under non-cancellable operating lease arrangements that
expire at various dates through 2028. We also have one land lease that expires in 2091. Rent expense includes base contractual
rent and variable costs such as building expenses, utilities, taxes, insurance and equipment rental. Rent expense and sublease
income for these leases for fiscal 2010 through fiscal 2012 were as follows (in thousands):
2012
Rent expense............................................................................................................
Less: sublease income .............................................................................................
Net rent expense ....................................................................................................
$
$
105,809
2,330
103,479
2011
$
$
111,574
3,211
108,363
2010
$
$
109,114
3,929
105,185
We occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference these
office buildings as the Almaden Tower and the East and West Towers.
The lease agreements for the East and West Towers and the Almaden Tower are effective through August 2014 and March
2017, respectively. We are the investors in the lease receivables related to these leases for the East and West Towers and the
Almaden Tower in the amount of $126.8 million and $80.4 million, respectively, which is recorded as investment in lease
receivables on our Consolidated Balance Sheets. As of November 30, 2012, the carrying value of the lease receivables related to
the towers approximated fair value. Under the agreement for the East and West Towers and the agreement for the Almaden Tower,
we have the option to purchase the buildings at any time during the lease term for approximately $143.2 million and $103.6
million, respectively. The residual value guarantees under the East and West Towers and the Almaden Tower obligations are
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$126.8 million and $89.4 million, respectively. If we purchase the properties, the investments in the lease receivables may be
credited against the purchase price.
These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessors
quarterly. In August 2009, we were required to obtain a standby letter of credit for approximately $16.6 million which enabled
us to secure a lower interest rate and reduce the number of covenants. As defined in the lease agreement, the standby letter of
credit primarily represents the lease investment equity balance which is callable in the event of default. As of November 30, 2012,
we were in compliance with all of the covenants. In the case of a default, the lessor may demand we purchase the buildings for
an amount equal to the lease balance, or require that we remarket or relinquish the buildings. If we choose to remarket or are
required to do so upon relinquishing the buildings, we are bound to arrange the sale of the buildings to an unrelated party and
will be required to pay the lessor any shortfall between the net remarketing proceeds and the lease balance, up to the residual
value guarantee amount less our investment in the lease receivables. Both leases qualify for operating lease accounting treatment
and, as such, the buildings and the related obligations are not included in our Consolidated Balance Sheets.
See Note 16 for discussion of our capital lease obligation.
Unconditional Purchase Obligations
Our purchase obligations consist of agreements to purchase goods and services entered in the ordinary course of business.
The following table summarizes our non-cancellable unconditional purchase obligations, operating leases and capital leases
for each of the next five years and thereafter as of November 30, 2012 (in thousands):
Operating Leases
Purchase
Obligations
Fiscal Year
2013..........................................................
2014..........................................................
2015..........................................................
2016..........................................................
2017..........................................................
Thereafter .................................................
Total .......................................................
Less: interest.............................................
Total .......................................................
Future
Minimum
Lease
Payments
$
$
256,353
22,334
24,190
23,925
3,361
12,004
342,167
$
$
48,562
42,843
31,156
25,833
21,726
80,235
250,355
Capital Leases
Future
Minimum
Sublease
Income
$
$
1,236
511
505
430
396
1,184
4,262
Future
Minimum
Lease
Payments
$
$
$
11,411
1,773
—
—
—
—
13,184
(341)
12,843
The table above includes operating lease commitments related to our restructured facilities. See Note 10 for information
regarding our restructuring charges.
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees as noted above. The fair value
of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our
Consolidated Balance Sheets. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East
and West Towers and Almaden Tower leases, respectively. These liabilities were recorded in other long-term liabilities with the
offsetting entry recorded as prepaid rent in other assets. The balance was amortized to our Consolidated Statements of Income
over the life of the original leases. As of November 30, 2012 there was no remaining balance of the unamortized portion of the
fair value of the residual value guarantees, for either lease, remaining on our Consolidated Balance Sheets.
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Royalties
We have royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally
based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under
our cost of products revenue on our Consolidated Statements of Income, was approximately $29.6 million, $29.8 million and
$34.1 million in fiscal 2012, 2011 and 2010, respectively.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to customers against claims of intellectual
property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims
by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not
been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future
results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for
certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification
period covers all pertinent events and occurrences during the officer's or director's lifetime. The maximum potential amount of
future payments we could be required to make under these indemnification agreements is unlimited; however, we have director
and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We
believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
Legal Proceedings
In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights,
including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted
litigation. Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by
diverting the attention and energies of management and key technical personnel. Although we have successfully defended or
resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual
property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on
unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions
restricting our sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or
require us to satisfy indemnification commitments with our customers including contractual provisions under various license
arrangements and service agreements.
In addition to intellectual property disputes, such as those discussed above and others, we are subject to legal proceedings,
claims and investigations in the ordinary course of business, including claims relating to commercial, employment and other
matters. Some of these disputes and legal proceedings may include speculative claims for substantial or indeterminate amounts
of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether
potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate
disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed
and discussed with our Audit Committee and our independent registered public accounting firm.
We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations,
settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise
specifically disclosed in this note, we have determined that no provision for liability nor disclosure is required related to any
claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may
be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate
is immaterial.
All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we
believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our
consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of
one or more of such proceedings, claims or investigations.
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In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business
Software Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to
counter-claims alleging improper use of litigation or violation of other laws. We believe we have valid defenses with respect to
such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be
affected in any particular period by the resolution of one or more of these counter-claims.
NOTE 16. DEBT
Our debt as of November 30, 2012 and December 2, 2011 consisted of the following (in thousands):
2012
Notes ....................................................................................................................................... $
Capital lease obligations .........................................................................................................
Total debt and capital lease obligations................................................................................
Less: current portion ...............................................................................................................
Debt and capital lease obligations ........................................................................................ $
1,495,312
12,843
1,508,155
11,217
1,496,938
2011
$
$
1,494,627
19,681
1,514,308
9,212
1,505,096
Notes
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0
million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). Our
proceeds were approximately $1.5 billion and were net of an issuance discount of $6.6 million. The Notes rank equally with our
other unsecured and unsubordinated indebtedness. In addition, we incurred issuance costs of approximately $10.7 million. Both
the discount and issuance costs are being amortized to interest expense over the respective terms of the Notes using the effective
interest method. The effective interest rate including the discount and issuance costs is 3.45% for the 2015 Notes and 4.92% for
the 2020 Notes. Interest is payable semi-annually, in arrears, on February 1 and August 1, commencing on August 1, 2010. During
fiscal 2012 interest payments totaled $62.3 million. The proceeds from the Notes are available for general corporate purposes,
including repayment of any balance outstanding on our credit facility.
We may redeem the Notes at any time, subject to a make whole premium. In addition, upon the occurrence of certain change
of control triggering events, we may be required to repurchase the Notes, at a price equal to 101% of their principal amount, plus
accrued and unpaid interest to the date of repurchase. The Notes also include covenants that limit our ability to grant liens on assets
and to enter into sale and leaseback transactions, subject to significant allowances. As of November 30, 2012, we were in compliance
with all of the covenants.
Credit Agreement
On March 2, 2012, we entered into a five-year $1.0 billion senior unsecured revolving credit agreement (the “Credit
Agreement”), providing for loans to us and certain of our subsidiaries. Pursuant to the terms of the Credit Agreement, we may,
subject to the agreement of the applicable lenders, request up to an additional $500.0 million in commitments, for a maximum
aggregate commitment of $1.5 billion. Loans under the Credit Agreement will bear interest at either (i) the London Interbank
Offered Rate (“LIBOR”) plus a margin, based on our debt ratings, ranging from 0.795% and 1.30% or (ii) the base rate, which is
defined as the highest of (a) the agent’s prime rate, (b) the federal funds effective rate plus 0.50% or (c) LIBOR plus 1.00% plus
a margin, based on our debt ratings, ranging from 0.00% to 0.30%. Commitment fees are payable quarterly at rates between 0.08%
and 0.20% per year also based on our public debt ratings. Subject to certain conditions stated in the Credit Agreement, we and any
of our subsidiaries designated as additional borrowers may borrow, prepay and re-borrow amounts under the revolving credit
facility at any time during the term of the Credit Agreement.
The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a
financial covenant, events of default and indemnification provisions in favor of the lenders. The negative covenants include
restrictions regarding the incurrence of liens and indebtedness, certain merger and acquisition transactions, dispositions and other
matters, all subject to certain exceptions. The financial covenant, based on a quarterly financial test, requires us not to exceed a
maximum leverage ratio.
117
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Credit Agreement will terminate and all amounts owing thereunder will be due and payable on March 2, 2017 unless
(a) the commitments are terminated earlier upon the occurrence of certain events, including events of default, or (b) the maturity
date is extended upon our request, subject to the agreement of the lenders.
As of November 30, 2012, there were no outstanding borrowings under this Credit Agreement and we were in compliance
with all covenants. In connection with entering into the Credit Agreement as described above, we terminated and paid off all
obligations under our previous credit agreement, dated as of February 16, 2007.
Capital Lease Obligation
In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2 million and leaseback the same
equipment over a period of 43 months. This transaction was classified as a capital lease obligation and was recorded at fair value.
As of November 30, 2012, our capital lease obligations of $12.8 million includes $11.2 million of current debt.
NOTE 17. NON-OPERATING INCOME (EXPENSE)
Non-operating income (expense) for fiscal 2012, 2011 and 2010 included the following (in thousands):
2012
Interest and other income (expense), net:
Interest income ......................................................................................
Foreign exchange gains (losses) ...........................................................
Realized gains on fixed income investment..........................................
Realized losses on fixed income investment.........................................
Other......................................................................................................
Interest and other income (expense), net..........................................
Interest expense .......................................................................................
Investment gains (losses), net:
Realized investment gains.....................................................................
Unrealized investment gains .................................................................
Realized investment losses....................................................................
Unrealized investment losses ................................................................
Investment gains (losses), net...........................................................
Non-operating income (expense), net......................................................
$
2011
2010
24,549 $
(31,431)
24,506 $
(30,226)
21,923
(12,948)
3,152
(278)
2,012
(178)
594
(3,414) $
(67,487) $
912
(2,974) $
(66,952) $
2,953
—
1,211
13,139
(56,952)
$
8,918 $
940
(104)
(250)
7,159 $
—
(850)
(452)
$
$
9,504 $
(61,397) $
5,857 $
(64,069) $
$
$
9,819
1,008
(9,619)
(7,318)
(6,110)
(49,923)
NOTE 18. INDUSTRY SEGMENT, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
We report segment information based on the “management” approach. The management approach designates the internal
reporting used by management for making decisions and assessing performance as the source of our reportable segments.
Our chief operating decision maker reviews revenue and gross margin information for each of our reportable segments, but
does not review operating expenses on a segment by segment basis. In addition, with the exception of goodwill and intangible
assets, we do not identify or allocate our assets by the reportable segments.
Effective in the first quarter of fiscal 2012, we modified our segments due to changes in how we operate our business. We
combined our Creative and Interactive Solutions segment with our Digital Media Solutions segment and our Knowledge Worker
segment, and named it Digital Media. We also renamed our Omniture segment to Digital Marketing and combined it with our
Enterprise segment. These changes reflect our focus on our two strategic growth opportunities. Our Print and Publishing segment,
which contains many of our mature products and solutions continues to be reported as it was in fiscal 2011. Prior year information
in the table below has been reclassified to reflect these changes.
118
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have the following reportable segments:
•
Digital Media—Our Digital Media segment provides tools and solutions that enable individuals, small businesses
and enterprises to create, publish, promote and monetize their digital content anywhere. Our customers include
traditional content creators, web application developers and digital media professionals, as well as their management
in marketing departments and agencies, companies and publishers.
•
Digital Marketing—Our Digital Marketing segment provides solutions and services for how digital advertising
and marketing are created, managed, executed, measured and optimized. Our customers include digital marketers,
advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers.
•
Print and Publishing—Our Print and Publishing segment addresses market opportunities ranging from the diverse
publishing needs of technical and business publishing to our legacy type and OEM printing businesses.
Our segment results for fiscal 2012, 2011 and 2010 were as follows (dollars in thousands):
Digital
Marketing
Digital Media
Fiscal 2012
Revenue .......................................................
Cost of revenue............................................
Gross profit..................................................
Gross profit as a percentage of revenue ......
Fiscal 2011
Revenue .......................................................
Cost of revenue............................................
Gross profit..................................................
Gross profit as a percentage of revenue ......
Fiscal 2010
Revenue .......................................................
Cost of revenue............................................
Gross profit..................................................
Gross profit as a percentage of revenue ......
$
$
$
$
$
$
Print and Publishing
Total
3,128,548
$
134,574
2,993,974
$
96%
1,058,357
$
338,600
719,757
$
68%
216,772
$
10,608
206,164
$
95%
4,403,677
483,782
3,919,895
89%
3,088,527
$
128,951
2,959,576
$
96%
909,406
$
301,600
607,806
$
67%
218,325
$
7,322
211,003
$
97%
4,216,258
437,873
3,778,385
90%
2,834,417
$
135,476
2,698,941
$
95%
739,356
$
254,727
484,629
$
66%
226,227
$
13,299
212,928
$
94%
3,800,000
403,502
3,396,498
89%
119
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tables below list our revenue and property and equipment, net, by geographic area for fiscal 2012, 2011 and 2010 (in
thousands). With the exception of property and equipment, we do not identify or allocate our assets (including long-lived assets)
by geographic area.
Revenue
2012
Americas:
United States .............................................................................
Other..........................................................................................
Total Americas......................................................................
EMEA..........................................................................................
APAC:
Japan..........................................................................................
Other..........................................................................................
Total APAC...........................................................................
Revenue .......................................................................................
$
$
2011
1,969,924
226,430
2,196,354
1,294,566
531,028
381,729
912,757
4,403,677
$
$
Property and Equipment
2010
1,823,205
221,399
2,044,604
1,317,417
517,378
336,859
854,237
4,216,258
$
$
2012
Americas:
United States...............................................................................................................
Other ...........................................................................................................................
Total Americas.......................................................................................................
EMEA............................................................................................................................
APAC:
India ............................................................................................................................
Other ...........................................................................................................................
Total APAC ............................................................................................................
Property and equipment, net .........................................................................................
$
$
1,641,985
193,309
1,835,294
1,191,946
477,462
295,298
772,760
3,800,000
2011
552,634
1,426
554,060
63,515
30,007
16,720
46,727
664,302
$
$
437,701
1,926
439,627
53,474
18,955
15,772
34,727
527,828
Significant Customers
As listed, our significant customers are distributors who sell products across our various segments. Our significant customers,
as a percentage of net revenue for fiscal 2012, 2011 and 2010 were as follows:
2012
Ingram Micro...............................................................................
2011
11%
2010
14%
15%
In fiscal 2012, no single customer was responsible for over 10% of our gross trade receivables. In fiscal 2011, Ingram Micro,
Inc. represented 14% of our gross trade receivables.
120
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
2012
(in thousands, except per share data)
Quarter Ended
Revenue......................................................................................
Gross profit ................................................................................
Income before income taxes ......................................................
Net income .................................................................................
Basic net income per share ........................................................
Diluted net income per share .....................................................
March 2
June 1
August 31
November 30
$ 1,045,220
$
936,955
$
270,377
$
185,209
$
0.37
$
0.37
$ 1,124,449
$
993,531
$
294,574
$
223,876
$
0.45
$
0.45
$ 1,080,580
$
960,959
$
263,212
$
201,357
$
0.41
$
0.40
$ 1,153,428
$ 1,028,450
$
290,631
$
222,333
$
0.45
$
0.44
2011
(in thousands, except per share data)
Quarter Ended
Revenue......................................................................................
Gross profit ................................................................................
Income before income taxes ......................................................
Net income .................................................................................
Basic net income per share ........................................................
Diluted net income per share .....................................................
March 4
June 3
September 2
December 2
$ 1,027,706
$
920,067
$
286,087
$
234,591
$
0.47
$
0.46
$ 1,023,179
$
913,978
$
259,244
$
229,436
$
0.46
$
0.45
$ 1,013,212
$
908,558
$
256,719
$
195,101
$
0.39
$
0.39
$ 1,152,161
$ 1,035,782
$
233,180
$
173,719
$
0.35
$
0.35
Our fiscal year is a 52- or 53-week year that ends on the Friday closest to November 30. Each of the fiscal quarters presented
were comprised of 13 weeks.
NOTE 20. SUBSEQUENT EVENTS
Subsequent to November 30, 2012, as part of our $2.0 billion stock repurchase program, we entered into a structured stock
repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $100.0 million. This
amount will be classified as treasury stock on our Consolidated Balance Sheets. Upon completion of the $100.0 million stock
repurchase agreement, $1.8 billion remains under our current authority. See Note 13 for further discussion of our stock repurchase
program.
On December 20, 2012, we acquired privately held Behance, an online social media platform to showcase and discover
creative work, for approximately $130.0 million in merger consideration, including cash and the assumption of certain employee
equity awards. The initial purchase accounting for this transaction has not yet been completed given the short period of time
between the acquisition date and the issuance of these financial statements.
Behance will be integrated into our Digital Media reportable segment for financial reporting purposes beginning in the first
quarter of fiscal 2013. This acquisition will not have a material impact to our Consolidated Balance Sheets and results of operations.
121
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Adobe Systems Incorporated:
We have audited the accompanying consolidated balance sheets of Adobe Systems Incorporated and subsidiaries
(the “Company”) as of November 30, 2012 and December 2, 2011, and the related consolidated statements of income, stockholders'
equity and comprehensive income, and cash flows for each of the years in the three-year period ended November 30, 2012. We
also have audited Adobe Systems Incorporated's internal control over financial reporting as of November 30, 2012, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Adobe Systems Incorporated's management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and an
opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Adobe Systems Incorporated and subsidiaries as of November 30, 2012 and December 2, 2011, and the results of their
operations and their cash flows for each of the years in the three-year period ended November 30, 2012, in conformity with
U.S. generally accepted accounting principles. Also in our opinion, Adobe Systems Incorporated maintained, in all material
respects, effective internal control over financial reporting as of November 30, 2012, based on criteria established in COSO.
As discussed in note 1 to the consolidated financial statements, the Company changed its method for accounting for multiple
element revenue transactions in fiscal 2010, resulting from the adoption of new accounting pronouncements.
(signed) KPMG LLP
Santa Clara, California
January 22, 2013
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures as of November 30, 2012. Based on their evaluation
as of November 30, 2012, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were
effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Annual Report on
Form 10-K was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adobe have been detected.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness
of our internal control over financial reporting as of November 30, 2012. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal ControlIntegrated Framework. Our management has concluded that, as of November 30, 2012, our internal control over financial reporting
is effective based on these criteria.
KPMG LLP, the independent registered public accounting firm that audited our financial statements included in this Annual
Report on Form 10-K, has issued an attestation report on our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended November 30, 2012 that
have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 of Form 10-K that is found in our 2013 Proxy Statement to be filed with the SEC
in connection with the solicitation of proxies for the Company’s 2013 Annual Meeting of Stockholders (“2013 Proxy Statement”)
is incorporated by reference to our 2013 Proxy Statement. The 2013 Proxy Statement will be filed with the SEC within 120 days
after the end of the fiscal year to which this report relates. For information with respect to our executive officers, see “Executive
Officers” at the end of Part I, Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K is incorporated by reference to our 2013 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item 12 of Form 10-K is incorporated by reference to our 2013 Proxy Statement.
123
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item13 of Form 10-K is incorporated by reference to our 2013 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 of Form 10-K is incorporated by reference to our 2013 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1.
Financial Statements. See Index to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
2.
Exhibits. The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of
this Form 10-K.
124
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 22, 2013.
ADOBE SYSTEMS INCORPORATED
By:
/s/ MARK GARRETT
Mark Garrett
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Shantanu Narayen and Mark Garrett, and each or any one of them, his or her lawful attorneys-in-fact and agents, for such person
in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either
of said attorneys-in-fact and agent, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ JOHN E. WARNOCK
John E. Warnock
/s/ CHARLES M. GESCHKE
Charles M. Geschke
/s/ SHATANU NARAYEN
Shantanu Narayen
/s/ MARK GARRETT
Mark Garrett
/s/ RICHARD T. ROWLEY
Richard T. Rowley
Title
January 22, 2013
Chairman of the Board of Directors
January 22, 2013
Chairman of the Board of Directors
January 22, 2013
Director, President and Chief Executive Officer
(Principal Executive Officer)
January 22, 2013
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
January 22, 2013
Vice President, Corporate Controller and
Principal Accounting Officer
/s/ AMY BANSE
Amy Banse
Director
/s/ KELLY BARLOW
Kelly Barlow
Director
/s/ EDWARD W. BARNHOLT
Edward W. Barnholt
Date
January 22, 2013
January 22, 2013
January 22, 2013
Director
125
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Signature
/s/ ROBERT K. BURGESS
Robert K. Burgess
/s/ FRANK CALDERONI
Frank Calderoni
/s/ MICHAEL R. CANNON
Michael R. Cannon
Title
January 22, 2013
Director
January 22, 2013
Director
January 22, 2013
Director
/s/ JAMES E. DALEY
James E. Daley
Director
/s/ LAURA DESMOND
Laura Desmond
Director
/s/ DANIEL L. ROSENSWEIG
Daniel L. Rosensweig
/s/ ROBERT SEDGEWICK
Robert Sedgewick
Date
January 22, 2013
January 22, 2013
January 22, 2013
Director
January 22, 2013
Director
126
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SUMMARY OF TRADEMARKS
The following trademarks of Adobe Systems Incorporated or its subsidiaries, which may be registered in the United States
and/or other countries, are referenced in this Form 10-K:
Acrobat
ActionScript
AdLens
Adobe
Adobe AIR
Adobe Audition
Adobe Connect
Adobe DataWarehouse
Adobe Discover
Adobe Genesis
Adobe Muse
Adobe Premiere
Adobe SiteSearch
Adobe Type Manager
After Effects
AIR
Auditude
Authorware
BusinessCatalyst
Captivate
ColdFusion
ColdFusion Builder
Contribute
Creative Cloud
Creative Suite
CRX
Director
Dreamweaver
EchoSign
Encore
Fireworks
Flash
Flash Builder
Font Folio
FrameMaker
FreeHand
Illustrator
InCopy
InDesign
JRun
Lightroom
LiveCycle
Omniture
PageMaker
PhoneGap
PhoneGap Build
Photoshop
PostScript
Prelude
Reader
RevelRoboHelp
Scene7
Shockwave
SiteCatalyst
127
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SUMMARY OF TRADEMARKS (Continued)
SpeedGrade
Test&Target
Typekit
Visual Communicator
All other trademarks are the property of their respective owners.
128
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INDEX TO EXHIBITS
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
Date
Number
3.1
Restated Certificate of Incorporation of Adobe
Systems Incorporated
8-K
4/26/11
3.3
3.2
Amended and Restated Bylaws
8-K
10/30/12
3.1
4.1
Specimen Common Stock Certificate
S-3
1/15/10
4.3
4.2
Form of Indenture
S-3
1/15/10
4.1
4.3
Forms of Global Note for Adobe Systems
Incorporated’s 3.250% Notes due 2015 and
4.750% Notes due 2020, together with Form of
Officer’s Certificate setting forth the terms of the
Notes
8-K
1/26/10
4.1
10.1
Amended 1994 Performance and Restricted Stock
Plan*
10-Q
4/9/10
10.1
10.2
Form of Restricted Stock Agreement used in
connection with the Amended 1994 Performance
and Restricted Stock Plan*
10-K
1/23/09
10.3
10.3
1997 Employee Stock Purchase Plan, as
amended*
8-K
4/26/11
10.1
10.4
1996 Outside Directors Stock Option Plan, as
amended*
10-Q
4/12/06
10.6
10.5
Forms of Stock Option Agreements used in
connection with the 1996 Outside Directors Stock
Option Plan*
S-8
6/16/00
4.8
10.6
2003 Equity Incentive Plan, as amended and
restated*
8-K
4/13/12
10.1
10.7
Form of Stock Option Agreement used in
connection with the 2003 Equity Incentive Plan*
8-K
12/20/10
99.4
10.8
Form of Indemnity Agreement*
10-Q
6/26/09
10.12
10.9
Forms of Retention Agreement*
10-K
2/17/98
10.44
10.10
Second Amended and Restated Master Lease of
Land and Improvements by and between SMBC
Leasing and Finance, Inc. and Adobe Systems
Incorporated
10-Q
10/7/04
10.14
10.11
Lease between Adobe Systems Incorporated and
Selco Service Corporation, dated March 26, 2007
8-K
3/28/07
10.1
129
Filed
Herewith
Table of Contents
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
Date
8-K
10.12
Participation Agreement among Adobe Systems
Incorporated, Selco Service Corporation, et al.
dated March 26, 2007
10.13
Master Amendment No. 2 among Adobe Systems
Incorporated, Selco Service Corporation and
KeyBank National Association dated October 31,
2011
10.14
Form of Restricted Stock Unit Agreement used in
connection with the Amended 1994 Performance
and Restricted Stock Plan*
10-K
1/26/12
10.13
10.15
Form of Restricted Stock Unit Agreement used in
connection with the 2003 Equity Incentive Plan*
10-K
1/26/12
10.14
10.16
Form of Restricted Stock Agreement used in
connection with the 2003 Equity Incentive Plan*
10-Q
10/7/04
10.11
10.17
2005 Equity Incentive Assumption Plan, as
amended*
10-Q
4/9/10
10.19
10.18
Form of Stock Option Agreement used in
connection with the 2005 Equity Incentive
Assumption Plan*
8-K
12/20/10
99.10
10.19
Allaire Corporation 1997 Stock Incentive Plan*
S-8
3/27/01
4.06
10.20
Allaire Corporation 1998 Stock Incentive Plan, as
amended*
S-8
3/27/01
4.07
10.21
Allaire Corporation 2000 Stock Incentive Plan*
S-8
3/27/01
4.08
10.22
Andromedia, Inc. 1999 Stock Plan*
S-8
12/7/99
4.09
10.23
Blue Sky Software Corporation 1996 Stock
Option Plan*
S-8
12/29/03
4.07
10.24
Macromedia, Inc. 1999 Stock Option Plan*
S-8
8/17/00
4.07
10.25
Macromedia, Inc. 2002 Equity Incentive Plan*
S-8
8/10/05
4.08
10.26
Form of Macromedia, Inc. Stock Option
Agreement*
S-8
8/10/05
4.09
10.27
Form of Macromedia, Inc. Revised Non-Plan
Stock Option Agreement*
S-8
11/23/04
4.10
10.28
Form of Macromedia, Inc. Restricted Stock
Purchase Agreement*
10-Q
2/8/05
10.01
130
3/28/07
Number
Filed
Herewith
10.2
X
Table of Contents
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
Date
Number
10.29
Adobe Systems Incorporated Form of
Performance Share Program pursuant to the 2003
Equity Incentive Plan*
8-K
1/26/12
10.2
10.30
Form of Award Grant Notice and Performance
Share Award Agreement used in connection with
grants under the Adobe Systems Incorporated
2008 Performance Share Program pursuant to the
2003 Equity Incentive Plan*
8-K
1/30/08
10.2
10.31
2008 Award Calculation Methodology Exhibit A
to the 2008 Performance Share Program pursuant
to the 2003 Equity Incentive Plan*
8-K
1/30/08
10.3
10.32
Adobe Systems Incorporated Deferred
Compensation Plan*
10-K
1/24/08
10.52
10.33
Adobe Systems Incorporated Executive Cash
Performance Bonus Plan*
DEF 14A
2/24/06
Appendix B
10.34
Second Amendment to Retention Agreement
between Adobe Systems Incorporated and
Shantanu Narayen, effective as of
December 17, 2010*
10-K
1/27/11
10.40
10.35
Employment offer letter between Adobe Systems
Incorporated and Richard Rowley, dated
October 30, 2006*
8-K
11/16/06
10.1
10.36
Employment offer letter between Adobe Systems
Incorporated and Mark Garrett dated January 5,
2007*
8-K
1/26/07
10.1
10.37
Credit Agreement, dated as of March 2, 2012,
among Adobe Systems Incorporated and certain
subsidiaries as Borrowers, The Royal Bank of
Scotland PLC and U.S. Bank National Association
as Co-Documentation Agents, JPMorgan Chase
Bank, N.A., as Syndication Agent, Bank of
America, N.A. as Administrative Agent and Swing
Line Lender, and the Other Lenders Party Thereto
8-K
3/7/12
10.1
10.38
Purchase and Sale Agreement, by and between NP
Normandy Overlook, LLC, as Seller and Adobe
Systems Incorporated as Buyer, effective as of
May 12, 2008
8-K
5/15/08
10.1
10.39
Form of Director Annual Grant Stock Option
Agreement used in connection with the 2003
Equity Incentive Plan*
8-K
12/20/10
99.8
10.40
Form of Director Initial Grant Restricted Stock
Unit Agreement in connection with the 2003
Equity Incentive Plan*
8-K
12/20/10
99.6
131
Filed
Herewith
Table of Contents
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
Date
Number
10.41
Form of Director Annual Grant Restricted Stock
Unit Agreement in connection with the 2003
Equity Incentive Plan*
8-K
12/20/10
99.7
10.42
2009 Executive Annual Incentive Plan*
8-K
1/29/09
10.4
10.43
Omniture, Inc. 1999 Equity Incentive Plan, as
amended (the “Omniture 1999 Plan”)*
S-1
4/4/06
10.2A
10.44
Forms of Stock Option Agreement under the
Omniture 1999 Plan*
S-1
4/4/06
10.2B
10.45
Form of Stock Option Agreement under the
Omniture 1999 Plan used for Named Executive
Officers and Non-Employee Directors*
S-1
6/9/06
10.2C
10.46
Omniture, Inc. 2006 Equity Incentive Plan and
related forms*
10-Q
8/6/09
10.3
10.47
Omniture, Inc. 2007 Equity Incentive Plan and
related forms*
10-K
2/27/09
10.9
10.48
Omniture, Inc. 2008 Equity Incentive Plan and
related forms*
10-K
2/27/09
10.10
10.49
Visual Sciences, Inc. (formerly,
WebSideStory, Inc.) Amended and Restated 2000
Equity Incentive Plan*
10-K
2/29/08
10.5
10.50
Visual Sciences, Inc. (formerly,
WebSideStory, Inc.) 2004 Equity Incentive Award
Plan (the “VS 2004 Plan”) and Form of Option
Grant Agreement*
10-K
2/29/08
10.6
10.51
Form of Restricted Stock Award Grant Notice and
Restricted Stock Award Agreement under the VS
2004 Plan*
10-K
2/29/08
10.6A
10.52
Visual Sciences, Inc. (formerly,
WebSideStory, Inc.) 2006 Employment
Commencement Equity Incentive Award Plan and
Form of Option Grant Agreement*
10-K
2/29/08
10.8
10.53
Avivo Corporation 1999 Equity Incentive Plan and
Form of Option Grant Agreement*
10-K
2/29/08
10.7
10.54
The Touch Clarity Limited Enterprise
Management Incentives Share Option Plan 2002*
S-8
3/16/07
99.5
10.55
Forms of Agreements under The Touch Clarity
Limited Enterprise Management Incentives Share
Option Plan 2002*
S-8
3/16/07
99.6
132
Filed
Herewith
Table of Contents
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
10.56
Form of Performance Share Program Award Grant
Notice and Performance Share Program
Performance Share Award Agreement pursuant to
the 2003 Equity Incentive Plan*
10.57
Date
Number
10-K
1/26/12
10.61
2010 Performance Share Program Award
Calculation Methodology pursuant to the 2003
Equity Incentive Plan*
8-K
1/29/10
10.3
10.58
Fiscal Year 2010 Executive Annual Incentive
Plan*
8-K
1/29/10
10.4
10.59
Day Software Holding AG International Stock
Option/Stock Issuance Plan*
S-8
11/1/10
99.1
10.60
Day Interactive Holding AG U.S. Stock Option/
Stock Issuance Plan*
S-8
11/1/10
99.2
10.61
Form of Restricted Stock Unit Grant Notice and
Restricted Stock Unit Award Agreement used in
connection with the 2005 Equity Incentive
Assumption Plan*
10-K
1/26/12
10.66
10.62
Description of 2011 Director Compensation*
10-K
1/27/11
10.73
10.63
Demdex, Inc. 2008 Stock Plan, as amended*
S-8
1/27/11
99.1
10.64
Award Calculation Methodology to the 2011
Performance Share Program pursuant to the 2003
Equity Incentive Plan*
8-K
1/28/11
10.3
10.65
2011 Executive Cash Performance Bonus Plan*
8-K
1/28/11
10.4
10.66
2011 Executive Annual Incentive Plan*
8-K
1/28/11
10.5
10.67
EchoSign, Inc. 2005 Stock Plan, as amended*
S-8
7/29/11
99.1
10.68
TypeKit, Inc. 2009 Equity Incentive Plan, as
amended*
S-8
10/7/11
99.1
10.69
Auditude, Inc. 2009 Equity Incentive Plan, as
amended*
S-8
11/18/11
99.1
10.70
Auditude, Inc. Employee Stock Option Plan, as
amended*
S-8
11/18/11
99.2
10.71
Description of 2012 Director Compensation*
10-K
1/26/12
10.76
10.72
Adobe Systems Incorporated 2011 Executive
Severance Plan in the Event of a Change of
Control for Prior Participants *
8-K
12/15/11
10.1
133
Filed
Herewith
Table of Contents
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
Date
Number
10.73
Adobe Systems Incorporated 2011 Executive
Severance Plan in the Event of a Change of
Control*
8-K
12/15/11
10.2
10.74
Award Calculation Methodology to the 2012
Performance Share Program pursuant to the 2003
Equity Incentive Plan*
8-K
1/26/12
10.3
10.75
2012 Executive Annual Incentive Plan*
8-K
1/26/12
10.4
10.76
Efficient Frontier, Inc. 2003 Stock Option/Stock
Issuance Plan, as Amended and Restated*
S-8
1/27/12
99.1
10.77
Form of Efficient Frontier, Inc. Non-Plan Notice
of Grant, Stock Option Agreement and Stock
Purchase Agreement*
S-8
1/27/12
99.2
10.78
Nomination and Standstill Agreement between the
Company and the ValueAct Group dated
December 4, 2012
8-K
12/5/12
99.1
12.1
Filed
Herewith
Ratio of Earnings to Fixed Charges
X
Subsidiaries of the Registrant
X
23.1
Consent of Independent Registered Public
Accounting Firm, KPMG LLP
X
24.1
Power of Attorney (set forth on the signature page
to this Annual Report on Form 10-K)
X
31.1
Certification of Chief Executive Officer, as
required by Rule 13a-14(a) of the Securities
Exchange Act of 1934
X
31.2
Certification of Chief Financial Officer, as
required by Rule 13a-14(a) of the Securities
Exchange Act of 1934
X
32.1
Certification of Chief Executive Officer, as
required by Rule 13a-14(b) of the Securities
Exchange Act of 1934†
X
32.2
Certification of Chief Financial Officer, as
required by Rule 13a-14(b) of the Securities
Exchange Act of 1934†
X
101.INS
XBRL Instance
X
101.SCH
XBRL Taxonomy Extension Schema
X
21
101.CAL XBRL Taxonomy Extension Calculation
X
134
Table of Contents
Incorporated by Reference**
Exhibit
Number
Exhibit Description
Form
Date
Number
Filed
Herewith
101.LAB
XBRL Taxonomy Extension Labels
X
101.PRE
XBRL Taxonomy Extension Presentation
X
101.DEF
XBRL Taxonomy Extension Definition
X
___________________________________
*
Compensatory plan or arrangement.
**
References to Exhibits 10.19 through 10.28 are to filings made by Macromedia, Inc. References to Exhibits 10.43
through 10.55 are to filings made by Omniture, Inc.
†
The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed
filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe
Systems Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained
in such filing.
135
Stock Performance Graph(*)
Five-Year Stockholder Return Comparison
The line graph below compares the cumulative stockholder return on our common stock with the cumulative total return
of the Standard & Poor's 500 Index (“S&P 500”) and the S&P 500 Software & Services Index for the five fiscal year periods
ending November 30, 2012. The stock price information shown on the graph below is not necessarily indicative of future price
performance.
The following table and graph assume that $100.00 was invested on November 30, 2007 in our common stock, the S&P
500 Index and the S&P 500 Software & Services Index, with reinvestment of dividends. For each reported year, our reported dates
are the last trading dates of our fiscal year which ends on the Friday closest to November 30.
Adobe Systems.....................................
S&P 500 Index.....................................
S&P 500 Software & Services Index...
2007
$ 100.00
$ 100.00
$ 100.00
2008
$ 54.96
$ 61.91
$ 57.37
2009
$ 83.96
$ 77.32
$ 86.99
2010
$ 69.15
$ 88.55
$ 96.80
2011
$ 64.33
$ 91.83
$ 104.83
2012
$ 82.14
$ 106.87
$ 118.70
_________________________________________
(*)
The material in this report is not deemed “filed” with the SEC and is not to be incorporated by reference into any of our filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filings.
136